Q2 2024 Primo Water Corp Earnings Call

August 8, 2024

Lara: Good morning. My name is Lara, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Primo Water Corporation's second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. Should you require operator assistance during the call, please press star zero. I'll now turn the call over to Jon Kathol, Vice President, Investor Relations.

Lara: Good morning. My name is Lara and I'll be your conference operator today. At this time, I would like to welcome everyone to the Primo Water Corporation's 2nd Quarter 2024 Earnings Conference Call.

Jon Kathol: Welcome to Primo Water Corporation's second quarter 2024 earnings conference call. All participants are currently in listen-only mode.

Jon Kathol: All lines have been placed on mute to prevent any background noise. Should you require operator assistance during the call, please press star zero. I'll now turn the call over to Jon Kathol, Vice President, Investor Relations.

Jon Kathol: The call is being webcast live on Primo Water's website at primowatercorp.com and will be available there for playback. This conference call includes forward-looking statements regarding the company's future financial and operational performance. The anticipated benefits and strategic rationale of the Blue Triton transaction, including estimated synergies and capital expenditure rates, the ability of Primo Water to complete the transaction on terms agreed or at all, the expected timing of the completed transaction, receipt of regulatory court and stock exchange approvals, and other statements that are not historical facts.

Jon Kathol: Welcome to Primo Water Corporation's second quarter 2024 earnings conference call. All participants are currently in listen-only mode. The call is being webcast live on Primo Water's website at primowatercorp.com and will be available there for playback.

Speaker Change: This conference call contains forward-looking statements regarding the company's future financial and operational performance.

Lara: The anticipated benefits and strategic rationale of the Blue Triton transaction, including estimated synergies and capital expenditure rates.

the ability of Primo Water to complete the transaction on terms agreed or at all, the expected timing of the completed transaction, receipt of regulatory court and stock exchange approvals, and other statements that are not historical facts.

Jon Kathol: These statements should be considered in connection with cautionary statements and disclaimers contained in the safe harbor statements in this morning's earnings press release, and the company's annual report on Form 10-K and quarterly reports on Form 10-Q and other filings with securities regulators. The company's actual performance could differ materially from these statements, and the company undertakes no duty to update these forward-looking statements, except as expressly required by applicable law.

These statements should be considered in connection with cautionary statements and disclaimers contained in the safe harbor statements in this morning's earnings press release and the company's annual report on Form 10-K and quarterly reports on Form 10-Q and other filings with securities regulators.

The company's actual performance could differ materially from these statements, and the company undertakes no duty to update these forward-looking statements, except as expressly required by applicable law.

Jon Kathol: 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 PrimoWaterCorp.com. In addition to slides accompanying today's webcast to assist you throughout our discussion, we have included a copy of the presentation in a supplemental earnings deck on our website.

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 primowatercorp.com.

In addition to slides accompanying today's webcast to assist you throughout our discussion, we have included a copy of the presentation in a supplemental earnings deck on our website.

Jon Kathol: I am accompanied by Robert Rietbroek, Primo Water's Chief Executive Officer, and David Hass, Chief Financial Officer. As previously announced, we will not be taking live questions from analysts or investors during this call. Instead, the most pertinent questions have been selected and will be addressed by our management team during today's call. Today's scripted comments will focus on Primo Water's current standalone results from its continuing operation. Questions and updates related to the proposed merger with Blue Triton Brands will be addressed in the moderated question and answer session on this call. With that, I will now turn the call over to Robert.

Speaker Change: I am accompanied by Robert Rietbroek, Primo Water's Chief Executive Officer, and David Hass, Chief Financial Officer.

Lara: As previously announced, we will not be taking live questions from analysts or investors during this call. Instead, the most pertinent questions have been selected and will be addressed by our management team during today's call.

Lara: Today's scripted comments will focus on Primo Water's current stand-alone results from continuing operations.

Questions and updates related to the proposed merger with Blue Triton Brands will be addressed in the moderated question and answer session on this call. With that, I will now turn the call over to Robert.

Robert Rietbroek: Thank you, John, and good morning, everyone. Since the beginning of this year, our team has adopted a new strategy that includes a relentless focus on customer-centric initiatives, must-win priorities, as well as a commercial and growth mindset, leveraging our portfolio of hydration solutions. Our must-wins are focused on delivering a superior customer experience, positioning ourselves as a partner of choice to retail partners and other key stakeholders, and operational excellence. Our brand portfolio is driving sustainable growth, and results are strong.

Robert: Thank you, John , and good morning, everyone. Since the beginning of this year, our team embraces a new strategy that includes a relentless focus on customer-centric initiatives, must-win priorities, as well as a commercial and growth mindset leveraging our portfolio of hydration solutions.

Robert: Our must-wins are focused on delivering a superior customer experience, positioning ourselves as a partner of choice to retail partners and other key stakeholders, and operational excellence.

Robert: our brand portfolio is driving sustainable growth and results are strong

Robert Rietbroek: Our second quarter results showed continued strength across the business and organization, with broad-based and balanced growth across channels. Strong progress against priorities, unit growth combined with pricing, enabling us to expand margins and generate a higher rate of free cash flow while delivering against sustainability targets. Total revenue of $485 million increased 7.6%, consisting of volume growth of 3.1% and pricing growth of 4.5%. Revenue gains were driven by organic growth of 6.6%, demonstrating the health of our consumer and category, as well as our strength across our brands and water solutions offerings in the current economic environment. Adjusted EBITDA was $113 million, up 15% versus the prior year, and increasing at nearly twice the rate of revenue growth. The resulting adjusted EBITDA margin was 23.3%, which gives us confidence in our full-year margin expansion.

Robert: Our second quarter results showed continued strength across the business and organization with broad-based and balanced growth across channels.

Robert: Strong progress against priorities, unit growth combined with pricing, enabling us to expand margins and generate a higher rate of free cash flow while delivering against sustainability targets.

Robert: Total revenue of $485 million increased 7.6%, consisting of volume growth of 3.1% and pricing growth of 4.5%.

Robert: Revenue gains were driven by organic growth of 6.6 percent, demonstrating the health of our consumer and category, as well as our strength across our brands and water solutions offerings in the current economic environment.

Robert: Adjusted EBITDA was $113 million, up 15% versus the prior year and increasing at nearly twice the rate of revenue growth.

Robert: the resulting adjusted ebitda margin was twenty-three point three percent which gives us confidence in our full year margin expansion

Robert Rietbroek: Both revenue and adjusted EBITDA exceeded the high end of our guidance issued last quarter. David will discuss more of the details of the quarter in a moment, but the results are a direct reflection of our associates and their commitment to our customers. I would like to publicly recognize and thank them for embracing our must-win priorities and remaining frontline focused while staying dedicated to growing the business profitably. From a macroeconomic perspective, demand for our water solutions is strong, and consumers continue to prioritize healthier lifestyles and focus on hydration.

Robert: Both revenue and adjusted EBITDA exceeded the high end of our guidance issued last quarter.

Lara: David will discuss more of the details of the quarter in a moment, but the results are a direct reflection of our associates and their commitment to our customers.

Speaker Change: I would like to publicly recognize and thank them for embracing our must-win priorities and remaining frontline focused while staying dedicated to growing the business profitably.

David: From a macroeconomic perspective, demand for our water solutions is strong, and consumers continue to prioritize healthier lifestyles and focus on hydration.

Robert Rietbroek: We offer high-quality drinking water solutions to meet consumer demand, however they choose to hydrate. We continue to see growth potential as a pure play water company in the large, highly fragmented, and growing North American water category. High-quality drinking water has universal appeal and is a solution for all day parts and usage occasions.

Speaker Change: We offer high-quality drinking water solutions to meet the consumer demand, however they choose to hydrate.

Speaker Change: We continue to see the growth potential as a pure plain water company in the large, highly fragmented and growing North America water category.

Robert: High quality drinking water has universal appeal and is a solution for all day parts and usage occasions.

Robert Rietbroek: Our split between the residential and commercial customer base remains approximately 50-50, ensuring a healthy balance of revenue sources. As a beverage company, compared to the broader beverage category, we are pleased that we continue to grow revenue in both volume and price. Furthermore, our current and future business opportunities benefit from additional tailwinds, including growing environmental concerns. Our extensive water resources ensure availability and are reinforced by our dedication to responsible water source stewardship. With that in mind, let us discuss the specific progress of each of our must-win priorities that I identified upon arriving earlier this year.

Speaker Change: Our split between residential and commercial customer base remains approximately 50-50, ensuring a healthy balance of revenue sources.

Speaker Change: As a beverage company, compared to the broader beverage category, we are pleased that we continue to grow revenue in both volume and price.

Speaker Change: Furthermore, our current and future business opportunities benefit from additional tailwinds, including growing environmental concerns.

Robert: Our extensive water resources ensure availability and are reinforced by our dedication to responsible water source stewardship.

Speaker Change: With that, let us discuss the specific progress of each of our must-win priorities that I identified upon arriving earlier this year.

Robert Rietbroek: The first must-win is to provide a superior customer experience with the goal of yielding net organic growth and units, or gallons, consumed across our water portfolio. We are focused on acquiring and maintaining high-value customers and driving annual gallon growth. Consumers can select our products from multiple price tiers, from a value price of $0.50 per gallon for water sold at a refill station all the way up to our super premium Mountain Valley spring water delivered in multi-format glass, PET, and aluminum bottles direct to their door or sold at retail at various on-premise locations.

Robert: The first must-win is to provide a superior customer experience, with the goal to yield net organic growth and units, or gallons, consumed across our water portfolio.

Robert: We are focused on acquiring and maintaining high-value customers and driving annual gallon growth.

Robert: Consumers can select our products from multiple price tiers.

Robert: from a value price of $0.50 per gallon for water sold at a refill station.

Robert: all the way up to our super-premium Mountain Valley spring water delivered in multi-format glass, PET, and aluminum bottles direct to their door or sold at retail and at various on-premise locations.

Robert Rietbroek: Our increased focus on Mountain Valley, which I spoke about last quarter, continues to deliver impressive results. During the second quarter, we increased our Mountain Valley retail revenue by approximately 87% over the prior year. We are off to an impressive start with the launch of our convenient nine-pack, single-serve, 16-ounce aluminum bottles, which began to sell in food stores throughout the country and to our Water Direct customers in Q2. Mountain Valley is already a leading brand of spring water sold in a natural foods channel, and we continue to see high levels of demand for our five-gallon, two-and-a-half-gallon, retail and on-premise, multi-serve, and single-use products.

Robert: Our increased focus on Mountain Valley, which I spoke about last quarter, continues to deliver impressive results.

Robert: During the second quarter, we increased our Mountain Valley retail revenue by approximately 87% over the prior year.

Robert: We are off to an impressive start with the launch of our convenient, nine-pack, single-serve, 16-ounce aluminum bottles, which began selling in food stores throughout the country and to our WaterDirect customers in Q2.

Robert: Mountain Valley is already a leading brand of spring water sold in a natural foods channel and we continue to see high levels of Mountain Valley demand for our five-gallon, two-and-a-half-gallon, retail and on-premise, multi-serve and single-use products.

Robert Rietbroek: We continue to scale operations in support of the mountain valley growth and are currently running all three of our glass bottling lines 24-7. Looking ahead to our broader portfolio, we have planned customer recruitment marketing programs like Refer a Friend, Movers, and Returning Customers that will include a targeted media campaign and a frictionless end-to-end customer experience where it's easy to do business with us. We are consistently enhancing various consumer touch points to improve their experience.

Robert: We continue to scale operations in support of the Mountain Valley growth and are currently running all three of our glass bottling lines 24-7.

Robert: Looking ahead to our broader portfolio,

Robert: We have planned customer recruitment marketing programs like Refer-a-Friend.

Robert: movers and returning customers

Robert: That will include a targeted media campaign and a frictionless end-to-end customer experience where it's easy to do business with us.

Robert: We are consistently enhancing various consumer touch points to improve their experience.

Robert Rietbroek: This quarter, traffic to our digital assets was up 29% as we upgraded the MyWaterPlus app with a fresh design, enhanced features, and launched improvements to our Water.com Quick Shop features to streamline the customer's shop-to-car journey, particularly when engaging with our promotions, and enabled easier access to customer support through our chat feature, now available six days a week.

Robert: This quarter, traffic to our digital assets was up 29% as we upgraded the MyWaterPlus app with a fresh design, enhanced features, and more.

Robert: and launched improvements to our water.com QuickShop features to streamline the customer's shop-to-car journey, particularly when engaging with our promotions, and enabled easier access to customer support through our chat feature, now available six days a week.

Robert Rietbroek: By increasing the coverage of our Customer Experience Center, we had over 30,000 interactions with customers via our chat functionality, with a focus on our quality of service and rapid request resolution. The initial reaction to our increased customer experience efforts is encouraging. Our Google Business rating has improved 8% year-over-year, and our Net Promoter scores have improved 12% from the prior year. The second must-win is to be the preferred water solutions partner.

Robert: By increasing the coverage of our Customer Experience Center, we had over 30,000 interactions with customers via our chat functionality, with a focus on our quality of service and rapid request resolution.

Robert: The initial reaction to our increased customer experience efforts is encouraging.

Robert: Our Google business rating has improved 8% year over year, and our net promoter scores have improved 12% from the prior year.

Robert: The second must-win is to be the preferred water solutions partner.

Robert Rietbroek: We meet the end consumer across numerous channels, like direct-to-consumer delivery or through one of our retail partners with our exchange locations or refill stations. We have an offering to meet each of our customers' needs and budget, or what we call Water Your Way. Customer and volume growth starts with increasing the number of customers and locations in Water Direct, Exchange, Refill and the sale of water dispensers at retail, which drives connectivity across our portfolio of water solutions.

Robert: We meet the end consumer across numerous channels, like direct-to-consumer delivery or through one of our retail partners with our exchange locations or refill stations.

Robert: we have an offering to meet each of our customers needs and budget or what we call what your way

Robert: Customer and volume growth starts with increasing the number of customers.

Robert: and locations in water direct exchange refill and the sale of water dispensers at retail which drives connectivity across our portfolio of water solutions

Robert Rietbroek: During the second quarter, we were able to secure additional display racks with certain major retail stores to support capacity in our exchange channel. We are focused on filling white space gaps and increasing capacity, and in stocks is having a noticeable effect by driving double-digit revenue growth in the exchange business.

Robert: During the second quarter, we were able to secure additional display racks with certain major retail stores to support capacity in our exchange channel.

Robert: Our focus on filling white space gaps and increasing capacity and in stocks is having a noticeable effect by driving double-digit revenue growth in the exchange business.

Robert Rietbroek: Increasing customers and locations will drive future volume growth. As evidence of this future growth, we were recently awarded an agreement to place up to 1,000 incremental refill machines with a large chain of convenience stores in the U.S. Placements of these machines will begin taking place during the remainder of 2024 and well into 2025.

Robert: The increase in customers and locations will drive future volume growth.

Robert: As evidence of this future growth, we were recently awarded an agreement to place up to 1,000 incremental refill machines with a large chain of convenience stores in the U.S.

Robert: Placements of these machines will begin taking place in the remainder of 2024 and well into 2025.

Robert Rietbroek: The concept of partnership stretches across all aspects of our business, including associates, suppliers, customers, and current and potential share owners. It begins with our associates, whose dedication is evident in every aspect of their efforts. Ensuring a safe environment is our top priority and is essential for our associates to thrive, and we are committed to enhancing our workplaces, upgrading offices, locker rooms, break areas, and parking facilities, as well as production and distribution areas.

Robert: The concept of partnering stretches across all aspects of our business, including associates, suppliers, customers, and current and potential share owners.

Robert: It begins with our associates, whose dedication is evident in every aspect of their efforts.

Robert: Ensuring a safe environment is our top priority and is essential for our associates to thrive and we are committed to enhancing our workplaces, upgrading offices, locker rooms, break areas, and parking facilities.

Robert Rietbroek: Associate Safety at Work, as well as in the home, is being fostered through the Q2 launch of the 100 Days of Safety Summer Program, aimed at raising awareness of summer safety best practices but also rewarding associates for adopting a safety mindset.

Robert: as well as production and distribution areas.

Robert: Associate Safety at Work, as well as in the home, is being fostered through the Q2 launch of the 100 Days of Safety Summer Program.

Robert: Aimed at raising awareness for summer safety best practices, but also rewarding associates for adopting a safety mindset.

Robert Rietbroek: The program rollout has yielded promising results in reported incidents and overall associate retention and engagement. Community involvement is a key element of our culture, as our associates live in the areas we serve and are passionate about the products and services we provide. One example of our community involvement includes providing support in times of need, like supplying water in times of natural disaster, like the wildfires and hurricanes across several states as well as during municipal water emergencies.

Robert: The program rollout has yielded promising results in reported incidents and overall associated retention and engagements.

Robert: Community involvement is a key element of our culture as our associates live in the areas we serve and are passionate about the products and services we provide.

Robert: One example of our community involvement includes providing support in times of need, like supplying water in times of natural disasters.

Robert: like the wildfires and hurricanes across several states as well as during municipal water emergencies

Robert: Last quarter, we also went above and beyond providing our products and services in times of need by investing our time in the betterment of our communities.

Robert Rietbroek: Last quarter, we also went above and beyond providing our products and services in times of need by investing our time in the betterment of our community. We had the pleasure of co-hosting a community cleanup recently with the City of Hot Springs Parks and Trails, the home of our Mountain Valley brand. We embrace our partnerships, and our customer base spans all types of retail, including mass merchandisers, club stores, DIY, and e-commerce with top-tier retailers like Walmart, Costco, Home Depot, Lowe's, and prominent grocery chains throughout North America.

Robert: We had the pleasure of co-hosting a community cleanup recently with the City of Hot Springs Parks and Trails, the home of our Mountain Valley brand.

Robert: We embrace our partnerships.

Robert: and our customer base spans across all types of retail.

Robert: including Mass Merchandisers.

Robert: club stores, DIY, and e-commerce, with top-tier retailers like Walmart, Costco, Home Depot, Lowe's, and prominent grocery chains throughout North America.

Robert Rietbroek: I continue to engage with these world-class retailers in top-to-top meetings and have found a strong desire on their part to drive more traffic to their stores and websites with our dispensers and water accessories, such as the rolling water cooler available on select retailer sites and water.com, exchange and refill stations, as well as Mountain Valley spring water. David and I once again had numerous and extensive interactions with investors and analysts during the second quarter.

Robert: i continue to engage with these world-class retailers and top to top meetings

Robert: and have found a strong desire on their part to drive more traffic to their stores and websites with our dispenses and water accessories

Robert: such as the rolling water cool are available on select retailer sites and water dot com exchange in refil stations as well as mountain valley springwater

Robert: David and I once again had numerous and extensive interactions with investors and analysts in the second quarter.

Robert Rietbroek: Key themes included an appreciation for our North American-focused business model, our growth algorithm, free cash flow generation and conversion, progress on the sale of the European and Israeli assets, an appreciation for a strong balance sheet and low leverage, how we plan to deploy capital in the coming quarters, and, of course, a review of our planned merger with Blue Triton Brand. I would like to extend my personal gratitude to our stakeholders for their high level of engagement.

Speaker Change: Key themes included an appreciation for our North American-focused business model, our growth algorithm, free cash flow generation and conversion, progress on the sale of the European and Israeli assets, an appreciation for our strong balance sheet, and low leverage.

Robert: how we plan to deploy capital in the coming quarters, and of course, a review of our planned merger with Blue Triton Brands.

Robert: I would like to extend my personal gratitude to our stakeholders for their high level of engagement.

Robert Rietbroek: By maintaining, strengthening, and enhancing these partnerships, we can achieve even greater success together. The third must-win is operational excellence. Specifically, ensuring that we have an optimized organizational structure and operating systems to guarantee our associates' safety and well-being, deliver the highest quality product and service to our valued customers, and scale efficiently as we continue to grow. During the second quarter, we began implementing six- and seven-day delivery schedules as we moved into our traditionally busy period of the summer.

Robert: By maintaining, strengthening, and enhancing these partnerships, we can achieve even greater success together.

Robert: the third must win is operational excellence

Robert: Specifically, ensuring that we have an optimized organizational structure and operating systems to guarantee our associates safety and well-being, deliver the highest quality product and service to our valued customers and scale efficiently as we continue to grow.

Robert: During the second quarter we began implementing six and seven day delivery schedules as we moved into our traditionally busy period of the summer.

Robert Rietbroek: We were able to increase our on-time inflow rate to 94% in our water direct channel for the second quarter, with positive feedback from our exchange customers on the strengthened holiday service support. Our refill channel had machine uptime of 98%, an increase over last quarter, and our time to address service calls improved by one and a half days versus last quarter. Throughout our operations, we are driving integrated business processes. During the second quarter, we increased our revenue per route by 5% and units per route per day by 2%, an indication of improved asset utilization, route density, and positive volume and pricing improvements.

Robert: We were able to increase our on-time inflow rate to 94% in our water direct channel for the second quarter with positive feedback from our exchange customers on the strengthened holiday service support.

Operator: Good morning.

Lara: My name is Lara and I'll be your conference operator today. At this time, I would like to welcome everyone to the Primo Water Corporation's second quarter of 2024 earnings conference call. Our lines have been placed in mute to prevent any background noise. Should you require operator assistance during the call, please press star zero. I'll now turn to the second quarter of 2024 earnings conference call. All participants are currently in listen only mode.

Robert: our refil channel had machinine uptime of ninety-eight percent an increase over last quarter and our time to address service calls improved by one and a half days for us last quarter

Robert: Throughout our operations, we are driving integrated business processes.

Robert: during the second quarter we increased our revenue perout by five percent and units per oute per day by two percent and indication of improved asset utilization route density and positive volumeand pricing improvement mix

Lara: The call is being webcast live on Primo Water's website at PrimoWaterCorp.com and will be available there for playback. This conference call contains forward-looking statements regarding the company's future financial and operational performance. The anticipated benefits and strategic rationale of the Blue Trident Transaction, including estimated synergies and capital expenditure rates. The ability of Primo Water to complete the transaction on terms agreed or at all. The expected timing of the completed transaction, receipt of regulatory court and stock exchange approvals and other statements that are not historical facts.

Robert Rietbroek: The same principles are now being employed in the optimization of our refill route, enabling us to extract more value from our team of technicians and service providers. We remain focused on strategic CapEx investments that deliver high returns. The installation of the new high-efficiency production lines continues, and we brought our EFRA.Pennsylvania production line online during the quarter. The performances of the high-efficiency line installations are driving a reduction in water waste at the filler and can nearly double the output capacity of the bottling line. We are utilizing advanced robotics to assist some of the more strenuous aspects of our planning and distribution function, ultimately freeing up our associates to focus on the quality aspects of their roles.

Robert: The same principles are now being employed in the optimization of our refill routes, enabling us to extract more value from our team of technicians and service providers.

Robert: we remain focused on strategic capex investments set deliver high returns the installation of the new high efficiency production lines continues

Robert: and we brought our effort up ensylvania production line online during the quarter

Robert: the performances of the high efficiency line installations are driving the reduction of waterways at the filler and can nearly double the output capacity of the botling line

Lara: These statements should be considered in connection with cautionary statements and disclaimers contained in the safe harbor statements in this morning's earnings press release. And the company's annual report on form 10K and quarterly reports on form 10Q and other filings with securities regulators. The company's actual performance could differ materially from these statements. And the company undertakes no duty to update these forward-looking statements except as expressly required by applicable law. A reconciliation of any non-gap financial measures discussed during the call with the most comparable measures in accordance with GAP on 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 PrimoWaterCorp.com. In addition to slides accompanying today's webcast to assist you throughout our discussion, we have included a copy of the presentation in a supplemental earnings deck on our website.

Robert: We are utilizing advanced robotics to assist some of the more strenuous aspects of our planned and distribution functions.

Robert: ultimately freeing up our associates to focus on the quality aspects of their roles.

Robert Rietbroek: The team is on track to deliver the previously announced business optimization program that will enhance our productivity and lower our overall cost to serve while continuing to offer customers an exceptional experience. We remain committed to the annual run rate savings of $20 million by year-end 2024, and David will speak to the achievements this quarter and the progress to our full-year goals. From a sustainability perspective, we strive to source and process responsibly to protect the planet we inhabit.

Speaker Change: The team is on track to deliver the previously announced Business Optimization Program that will enhance our productivity and lower our overall cost to serve, while continuing to offer customers an exceptional experience.

Speaker Change: We remain committed to the annual run rate savings of $20 million by year-end 2024. And David will speak to the achievements this quarter and the progress to our full-year goals.

David Hass: From a sustainability perspective, we strive to source and process responsibly.

Lara: I am accompanied by Robert Reepbroke, Primo Water's chief executive officer and David Hass, chief financial officer. As previously announced, we will not be taking live questions from analysts or investors during this call. Instead, the most pertinent questions have been selected and will be addressed by our management team during today's call. Today's scripted comments will focus on PrimoWater's current standalone results from continuing operations. Questions and updates related to the proposed merger with Blue Triton brands will be addressed in the moderated question and answer session on this call.

Robert Rietbroek: We will continue to implement our environmental strategy that is focused on sourcing water responsibly, converting our fleets to more eco-friendly propane, reusing, refilling, and recycling of our plastic bottles, and increasing the use of glass and aluminum as part of our product offering. We carefully monitor our withdrawal rates, and we use less than 25% of the permitted withdrawal limits, ensuring the long-term viability of our 100 water sources, which include 26 of our own wells and springs.

David Hass: to protect the planet we inha it

Speaker Change: We will continue to implement our environmental strategy that is focused on sourcing water responsibly, converting our fleets to more eco-friendly propane,

David Hass: reusing, refilling, and recycling of our plastic bottles, and increasing the use of glass and aluminum as part of our product offering.

David Hass: We carefully monitor our withdrawal rates, and we use less than 25% of the permitted withdrawal limits.

Robert Reepbroke: With that, I will now turn the call over to Robert. Thank you, John, and good morning, everyone. Since the beginning of this year, our team embraces a new strategy that includes a relentless focus on customer-centric initiatives, must-win priorities as well as a commercial and growth mindset leveraging our portfolio of hydration solutions. Our must-wins are focused on delivering a superior customer experience, positioning ourselves as a partner of choice to retail partners, and other key stakeholders at Operational Excellence.

David Hass: ensuring the long-term viability of our 100 water sources, which include 26 of our own wells and springs.

Robert Rietbroek: We will detail these results and improvements in our 2023 Sustainability Report, which will be released later this quarter. We have a clear plan to deliver growth and profitability with a favorable balance of volume and price. Our unique combination of associates, assets, and resources is capable of delivering strong results that benefit all our stakeholders. We are well positioned for future success. Before I turn the call over to David to review our financial results in greater detail and provide our third quarter and full year 2024 outlook, I would like to once again thank all our Primo Water Associates for their support and contribution to the excellent performance of the business. With that, I will now turn the call over to David.

David Hass: We will detail these results and improvements in our 2023 Sustainability Report, which will be released later this quarter.

David Hass: We have a clear plan to deliver growth and profitability with a favorable balance of volume and pricing.

David Hass: Our unique combination of associates, assets, and resources are capable of delivering strong results that benefit all our stakeholders.

Robert Reepbroke: Our brand portfolio is driving sustainable growth, and results are strong. Our second quarter results showed continued strength across the business and organization, with broad-based and balanced growth across channels. Strong progress against priorities, unit growth combined with pricing, enabling us to expand margins and generate a higher rate of free cash flow, while delivering against sustainability targets. Total revenue of $485 million increased 7.6%, consisting of volume growth of 3.1% and pricing growth of 4.5%.

David Hass: we are well positioned for future success before i turn the call over to david to review our financial results in greater detail and provide our third quarter and a full year two thousand and twenty-four outlook

David Hass: I would like to once again thank all our Primo Water Associates for their support and contribution to the excellent performance of the business. With that, I will now turn the call over to David.

David Hass: As a reminder, at the end of 2023, we disposed of a significant portion of our international assets. Thus, our financial results discussed today are for continuing operations only. We are not covering discontinued operations unless otherwise noted.

David Hass: Thanks, Robert.

David Hass: as a reminder at the end of two thousand and twenty three we disposed of a significant portion of our international assets

David Hass: And thus, our financial results discussed today are for continuing operations only. We are not covering discontinued operations unless otherwise noted.

Robert Reepbroke: Revenue gains were driven by organic growth of 6.6%, demonstrating the health of our consumer and category, as well as our strength across our brands and water solutions offerings in the current economic environment. Adjusted EBITDA was 113 million, up 15% versus the prior year, and increasing it nearly twice the rate of revenue growth. The resulting adjusted EBITDA margin was 23.3%, which gives us confidence in our full-year margin expansion. Both revenue and the adjusted EBITDA exceeded the high end of our guidance issued last quarter.

David Hass: The second quarter results of our continuing operations included revenue increasing 7.6% to $485 million, adjusted EBITDA increasing 15% to $113 million, and adjusted EBITDA margins of 23.3%. All metrics exceeded the high end of our most recent guidance. Within the 7.6% revenue growth, approximately $6.6 or approximately $29.8 million came from organic growth activity, with the balance 1% or approximately $4.6 million coming from inorganic or acquired sources. Primo Water's definition of inorganic contribution includes any acquired businesses that were closed less than 12 months ago.

David Hass: The second quarter results of our continuing operations included revenue increasing 7.6% to $485 million.

David Hass: adjusted EBITDA increasing 15% to $113 million, with adjusted EBITDA margins of 23.3%.

David Hass: All metrics exceeded the high end of our most recent guidance.

David Hass: Within the 7.6% revenue growth, approximately 6.6%

Robert Reepbroke: David will discuss more of the details of the quarter in a moment, but the results are a direct reflection of our associates and their commitment to our customers. I would like to publicly recognize and thank them for embracing our must-win priorities and remaining frontline focused while staying dedicated to growing the business profitably. From a macroeconomic perspective, demand for our water solutions is strong, and consumers continue to prioritize healthier lifestyles and focus on hydration.

David Hass: or approximately $29.8 million came from organic growth activity with the balance 1% or approximately $4.6 million coming from inorganic or acquired sources.

David Hass: Primo Water's definition of inorganic contribution includes any acquired businesses that were closed less than 12 months ago. After 12 months, any acquired business becomes part of our normal contribution base.

David Hass: After 12 months, any acquired business becomes part of our normal contribution base. Separately, the 7.6% revenue growth, irrespective of organic or acquired means, can be split into approximately 3.1% related to volume activity and approximately 4.5% related to pricing activity. Volume contribution, in this case, comes from both new customer additions or additional gallons consumed from existing customers or additional retail traffic in our exchange or refill businesses where actual customer counts are not directly known.

David Hass: Separately, the 7.6% revenue growth, irrespective of organic or acquired means, can be split into approximately 3.1% related to volume activity and approximately 4.5% related to pricing activity.

Robert Reepbroke: We offer high quality drinking water solutions to meet the consumer demand, however they choose to hydrate. We continue to see the growth potential as a pure plain water company in the large, highly fragmented, and growing North America water category. High quality drinking water has universal appeal and is a solution for all day parts and usage occasions. Our split between residential and commercial customer base remains approximately 50-50, ensuring a healthy balance of revenue sources.

David Hass: volume contribution in this case comes from both new customer additions or additional gallons consumed from existing customers or additional retail traffic in our exchange or realil businesses where actual customer counts are not directly known

David Hass: Volume activity in the quarter was strong across all of our water solutions, indicating strength in our bulk-oriented offering, as well as the complementary nature of our different water channels. We believe that volume across our water solutions will continue to be a primary indicator of business health versus overall customer count. Once again, we have expanded our channel disclosure to break out the price and volume splits for each of the channels versus the prior year. A table of the results is included with our supplemental earnings deck.

David Hass: volume activity in the quarter was strong across all of our water solutions indicating strength in our bulk oriented offering as well as the complementary nature of our different water channels

Robert Reepbroke: As a beverage company, compared to the broader beverage category, we are pleased that we continue to grow revenue in both volume and price. Furthermore, our current and future business opportunities benefit from additional tailwinds, including growing environmental concerns. Our extensive water resources ensure availability and are reinforced by our dedication to responsible water source stewardship.

David Hass: We believe that volume across our water solutions will continue to be a primary indicator of business health versus overall customer counts.

David Hass: Once again, we have expanded our channel disclosure to break out the price and volume splits for each of the channels versus prior year. A table of the results is included with our supplemental earnings deck.

Robert Reepbroke: With that, let us discuss the specific progress of each of our must-win priorities that I identified upon arriving earlier this year. The first must-win is to provide a superior customer experience with the goal to yield net organic growth and units or gallons consumed across our water portfolio. We are focused on acquiring and maintaining high-value customers and driving annual galling growth. Consumers can select our products from multiple price tiers, from a value price of 50 cents per gallon for water sold at a refill station, all the way up to our super premium mountain valley spring water delivered in multi-format glass, PET and aluminum bottles direct to their door, or sold at retail at various on-premise locations.

David Hass: You will notice that volume gains occurred across each of the water channels and prices improved, except for the welcome price decline in water dispensers. Within our channels, we had strong revenue growth of 7% in Water Directing and Exchange and a 12% increase in our Water Refill and Filtration channels. The other water channel, which is primarily the retail and on-premise portion of Mountain Valley Premium Spring Water, was up 87%. The water dispenser business, representing the sell-in of our units to the retailer, declined 21%, driven by a decline of 16% in volume and expected lower wholesale prices as the tariff elimination works through our pricing architecture.

David Hass: You will notice that volume gains occurred across each of the water channels and price improved, except for the welcome price decline in water dispensers.

David Hass: Within our channels, we had strong revenue growth of 7% in water directing and exchange, and a 12% increase in our water refill and filtration channel.

David Hass: The other water channel, which is primarily the retail and on-premise portion of Mountain Valley Premium Spring Water, was up 87%.

David Hass: The water dispenser business, representing the sell-in of our units to the retailer, declined 21%, driven by a decline of 16% from volume and expected lower wholesale prices as the tariff elimination works through our pricing architecture.

David Hass: On the heels of a very strong first quarter, through the first half of 2024, the water dispenser business is up 2%, driven by volume of approximately 15% and offset by pricing of negative 13%. The other channel decline is reflective of our remaining non-core office coffee services, which is not a point of emphasis in our current model.

Robert Reepbroke: Our increased focus of mountain valley, which I spoke about last quarter, continues to deliver impressive results. During the second quarter, we increased our mountain value retail revenue by approximately 87% over the prior year. We are off to an impressive start with the launch of our convenience, 9-pack single-serve 16-ounce aluminum bottles, which began south-food stores throughout the country and to our water direct customers in Q2. Mountain Valley is already a leading brand of spring water sold in a natural food channel, and we continue to see high levels of mountain valley demand for our five gallon, two and a half gallon, retail and on-premise, multi-serve and single-use products.

David Hass: On the heels of a very strong first quarter, through the first half of 2024, the water dispenser business is up 2%, driven by volume of approximately 15%, and offset by pricing of negative 13%.

David Hass: The other channel decline is reflective of our remaining non-core office coffee services, which is not a point of emphasis in our current model.

David Hass: Water dispenser sell-through, or those items sold from the retailer to the end customer, was approximately 260,000 units in the quarter, up approximately 4%. As a reminder, our business model includes two ways of selling the water dispenser. The rental of the water dispenser to residential and commercial customers in our WaterDirect business and the sale of water dispensers through our retail partners and online.

David Hass: Water dispensers sell-through, or those items sold from the retailer to the end customer, was approximately 260,000 units in the quarter, up approximately 4%.

Robert Reepbroke: We continue to scale operations in support of the mountain valley growth and are currently running all three of our glass bottling lines 24-7. Looking ahead to our broader portfolio, we have planned customer recruitment marketing programs like refer a friend, movers and returning customers. That will include a targeted media campaign, and a frictionless end-to-end customer experience where it's easy to do business with us. We are consistently enhancing various consumer touchpoints to improve their experience.

David Hass: Both approaches enable growth in water solutions and contribute to our predictable and recurring revenue growth. We have been particularly focused on growth with our brick-and-mortar retail partners, where we have greater visibility into the connectivity to our water solutions and higher connectivity compared to e-commerce channels. As discussed in previous calls, our water dispenser category was previously under a 25% import tariff but was reclassified last year, and a refund process from the U.S. government was initiated. When we receive funds, we record them in the same manner as the original transaction. During Q2, we did not receive any refunds, reflecting the inconsistent nature of the government refund process.

David Hass: Both approaches enable growth in water solutions and contribute to our predictable and recurring revenue growth.

David Hass: We have been particularly focused on growth with our brick-and-mortar retail partners, where we have greater visibility into the connectivity to our water solutions and higher connectivity compared to e-commerce channels.

Robert Reepbroke: This quarter, traffic to our digital assets was up 29% as we upgraded the MyWater Plus app with a fresh design, enhanced features, and launched improvements to our water.com quick shop features to streamline the customer's shop to cart journey, particularly when engaging with our promotions, and enabled easier access to customer support through our chat feature, now available six days a week. By increasing the coverage of our customer experience center, we had over 30,000 interactions with customers via our chat functionality, with a focus on our quality of service, and rapid request resolution. The initial reaction to our increased customer experience efforts is encouraging. Our Google business rating has improved 8% year over year, and our net promoter scores have improved 12% from the prior year.

David Hass: When we receive funds, we record them in the same manner as the original transactions.

David Hass: During Q2, we did not receive any refunds reflecting the inconsistent nature of the government refund process.

David Hass: When including last year's payments, cumulatively, through the second quarter of 2024, we have received approximately $10.8 million. We remain confident that refunds will be received, but we cannot predict the timing of receipts. As we look further into the operational metrics, and as Robert mentioned earlier, our commitment to improving the customer experience continues to result in improved on-time, in-full, or OTIF rates. The ability to serve our customers in the most efficient manner possible is a critical driver of both our short and long-term profitability, and our Automated Route Optimization, or ARO, tool continues to yield efficiencies.

David Hass: As we look further into the operational metrics, and as Robert mentioned earlier, our commitment to improving the customer experience continues to result in improved on-time, in-full, or OTIF rates, the ability to serve our customers in the most efficient manner,

Robert Reepbroke: The second must win is to be the preferred water solutions partner. We meet the end consumer across numerous channels, like direct to consumer delivery, or through one of our retail partners with our change locations or refill stations. We have an offering to meet each of our customer's needs and budget, or what we call, water your way. Customer and volume growth starts with increasing the number of customers, and locations in water direct, exchange, refill, and the sale of water dispensers at retail, which drives connectivity across our portfolio of water solutions.

Robert Rietbroek: possible is a critical driver of both our short and long-term profitability.

Robert Rietbroek: and our Automated Route Optimization, or ARO, tool continues to yield efficiencies.

David Hass: In the U.S., units per route per day increased approximately 2% compared to Q2 of 2023, and revenue per route increased more than 5% compared to Q2 of 2023. Additionally, Water Direct customer retention increased to approximately 86 percent, an increase versus the end of last year and the second quarter of 2023.

Robert Rietbroek: In the U.S., units per route per day increased approximately 2% compared to Q2 of 2023, and revenue per route increased more than 5% compared to Q2 of 2023.

David Hass: our scale and leverage continued to improve as we service more customers with higher volume peroute additionally water direct customer attention increased to approximately eighty six percent and increase ver the end of last year and the second quarter of two thousand and twenty three

Robert Reepbroke: During the second quarter, we were able to secure additional display racks with certain major retail stores to support capacity in our exchange channel. Our focus on filling white space gaps and increasing capacity and in stocks is having a noticeable effect by driving double digit revenue growth in the exchange business. The increase in customers and locations will drive future volume growth. As evidence of this future growth, we were recently awarded an agreement to place up to 1000 incremental refill machines with a large chain of convenience stores in the US.

David Hass: Moving to our balance sheet and cash flow, our net leverage ratio at the end of the second quarter on a trailing 12-month basis stood at approximately 1.6 times our adjusted EBITDA, a 50 basis point improvement from year-end 2023. Similarly, our liquidity remains strong with approximately $603 million of cash on the balance, approximately $615.5 million when considering the cash within our discontinued operations and a fully unused cash flow revolver. Specific to our cash flow revolver, we recently extended the maturity of our revolver to September 2026, which will allow us time to establish the proper capital support financing for NUCCO once the merger is completed.

David Hass: Shifting to our balance sheet and cash flows.

David Hass: our net leverage ratio at the end of the second quarter on a trailing twelve month basis stood it approximately one point six times are adjusted ebitda a fifty basis point improvement from year end two thousand and twenty three

David Hass: Similarly, our liquidity remains strong with approximately $603 million of cash on the balance sheet, approximately $615.5 million when considering the cash within our discontinued operations, and a fully unused cash flow revolver.

Robert Reepbroke: Placement of these machines will begin taking place in the remainder of 2024 and well into 2025. The concept of partnering stretches across all aspects of our business, including associates, suppliers, customers, and current and potential share owners. It begins with our associates whose dedication is evident in every aspect of their efforts. Ensuring a safe environment is our top priority and is essential for our associates to thrive. And we are committed to enhancing our workplaces, upgrading offices, locker rooms, break areas, and parking facilities, as well as production and distribution areas.

Robert Rietbroek: Specific to our cash flow revolver, we recently extended the maturity of our revolver to September 2026, which will allow us time to establish the proper capital support financing for NUCO once the merger is completed.

David Hass: In the quarter, we paid approximately $21.4 million of interest, net of interest income. On a full year basis, while we will be a net interest expense payer, we are quite pleased with both the low interest rate carried on our senior notes and our ability to generate interest income in today's yield environment. During the second quarter, we completed the sale of Amy of Foods, our UK food and drink business, for $75.5 million, approximately $91 million when including dividends extracted from the business.

Robert Rietbroek: In the quarter, we paid approximately $21.4 million of interest, net of interest income.

Robert Rietbroek: On a full-year basis, while we will be a net interest expense payer, we are quite pleased with both the low interest rate carried on our senior notes and our ability to generate interest income in today's yield environment.

Robert Rietbroek: During the second quarter, we completed the sale of Amy of Foods, our UK food and drink business, for $75.5 million, approximately $91 million, when including dividends extracted from the business.

Robert Reepbroke: Associate safety at work, as well as in the home, is being fostered to the Q2 launch of the 100 days of safety summer program. Aimed at raising awareness for summer safety best practices, but also rewarding associates for adopting a safety mindset. The program roll out as yielded promising results in reported incidents and overall associate retention and engagement. Community involvement is a key element of our culture as our associates live in the areas we serve and are passionate about the products and services we provide.

David Hass: After the close of Q2, we successfully completed the sale of our Portugal business for $19.2 million. Due to the timing of the Portugal sale, the funds are not reflected in our Q2 balance sheet. We remain on target to complete the sale of the businesses in Israel and the UK by year-end. The Israel process is being run by an investment bank, and interest levels are strong.

Robert Rietbroek: After the close of Q2, we successfully completed the sale of our Portugal business for $19.2 million.

Robert Rietbroek: due to the timing of the portugal sale the funds are not reflected in our q two balance sheet

Robert Rietbroek: We remain on target to complete the sale of the businesses in Israel and the UK by year-end. The Israel process is being run by an investment bank and interest levels are strong.

Robert Reepbroke: One example of our community involvement includes providing support in times of need, like supplying water in times of natural disasters, like the wildfires and hurricanes across several states, as well as during municipal water emergencies. Last quarter, we also went above and beyond providing our products and services in times of need by investing our time in the betterment of our communities. We had the pleasure of co-hosting a community cleanup recently with the city of hot springs, parks, and trails, the home of our mountain valley brand.

David Hass: Our adjusted free cash flow results for the second quarter totaled $73 million, a year-over-year improvement of $34 million. The improvement was primarily driven by increased earnings, reduced net interest expense, and improved working capital, offset by increased levels of capital expenditures and higher cash taxes due to fewer NOLs as we shift to a net taxpayer relative to prior years. As a reminder, our increase in year-over-year adjusted free cash flow is different than how that growth contributes to our full year 2024 guidance, which I will discuss in a few minutes.

Robert Rietbroek: our adjusted free cash flow results for the second quarter total seventy three million dollars

Robert Rietbroek: a year-over-year improvement of thirty four million dollars

Robert Rietbroek: The improvement was primarily driven by increased earnings, reduced net interest expense,

Robert Rietbroek: and improved working capital, offset by increased levels of capital expenditures and higher cash taxes due to fewer NOLs as we shift to a net taxpayer relative to prior years.

Robert Rietbroek: As a reminder, our increase in year-over-year adjusted free cash flow is different than how that growth contributes to our full year 2024 guidance, which I will discuss in a few minutes.

David Hass: We are incredibly pleased with the free cash flow momentum on a year-over-year basis. The results for the second quarter reflect a series of receivables improvements and improved inventory levels that began in the second half of last year and are still driving benefits today.

Robert Rietbroek: We are incredibly pleased with the free cash flow momentum on a year-over-year basis. The results for the second quarter reflect a series of receivables improvements and improved inventory levels that began in the second half of last year and are still driving benefit today.

Robert Reepbroke: We embrace our partnerships and our customer base spans across all types of retail, including mass merchandisers, club stores, DIY, and e-commerce with top tier retailers like Walmart, Costco, Home Depot, Lowe's, and prominent grocery chains throughout North America. I continued to engage with these world-class retailers in top-to-top meetings, and I found a strong desire on their part to drive more traffic to their stores and websites with our dispensers and water accessories, such as the rolling water cooler available on select retailer sites and water.com. Exchange and refill stations, as well as mountain valley spring water.

David Hass: As supported in our supplemental earnings debt, in the third quarter of 2023, we posted adjusted free cash flow of $92.7 million in our continuing operations, which was the primary contribution for our full year 2023 results of $157.8 million. Because of this outsized contribution, as we head into the third quarter of 2024, we expect a more measured outcome per quarter in our free cash flow for the second half of 2024. In summary, we are pleased with our ability to maintain a high conversion of our adjusted EBITDA into free cash flow, and our 2024 guidance contemplates this outcome. Once again, as I transition into our 2024 outlook, any forward guidance will strictly be for continuing operations. Discontinued operations will not be covered.

Robert Rietbroek: As supported in our Supplemental Earnings Deck, in the third quarter of 2023, we posted adjusted free cash flow of $92.7 million.

Robert Rietbroek: in our continuing operations, which was the primary contribution for our full year 2023 results of $157.8 million.

Robert Rietbroek: Because of this outsized contribution, as we head into the third quarter of 2024, we expect a more measured outcome per quarter in our free cash flow for the second half of 2024.

Robert Reepbroke: David and I once again had numerous and extensive interactions with investors and analysts in the second quarter. He seems included an appreciation for our North American focused business model, our growth algorithm, pre-cashable generation and conversion, progress on the sale of the European and Israeli assets, an appreciation for our strong balance sheet and low leverage, how we plan to deploy capital in the coming quarters and of course a review of our planned merger with Blue Triton Brands. I would like to extend my personal gratitude to our stakeholders for their high level of engagement by maintaining, strengthening and enhancing these partnerships we can achieve even greater success together.

Robert Rietbroek: In summary, we are pleased with our ability to maintain a high conversion of our adjusted EBITDA into free cash flow, and our 2024 guidance contemplates this outcome.

Robert Rietbroek: Once again, as I transition into our 2024 outlook, any forward guidance will strictly be for continuing operations. Discontinued operations will not be covered.

David Hass: To help bridge our 2024 guidance, a table of 2023's financial results for continuing operations by quarter has been provided in the appendix of our supplemental earnings slide. We are forecasting third quarter revenue guidance to be between $485 million and $495 million. We expect Q3 adjusted EBITDA to be between $115 million and $125 million, with an implied adjusted EBITDA margin of 24.5% at the midpoint. The 24.5% adjusted EBITDA margin represents a 70 basis point improvement from the year-ago period.

Robert Rietbroek: To help bridge our 2024 guidance, a table of 2023's financial results for continuing operations by quarter has been provided in the appendix of our supplemental earnings slides.

Robert Rietbroek: We are forecasting third quarter revenue guidance to be between $485 million and $495 million.

Robert Rietbroek: We expect Q3 adjusted EBITDA to be between $115 million and $125 million, with an implied adjusted EBITDA margin of 24.5% at the midpoint.

Robert Reepbroke: The third must win is operational excellence, specifically ensuring that we have an optimized organizational structure and operating systems to guarantee our associate safety and well-being deliver the highest quality product and service to our valued customers and scale efficiently as we continue to grow. During the second quarter we began implementing six and seven day delivery schedules as we moved into our traditionally busy period of the summer. We were able to increase our on-time inflow rate to 94% in our water direct channel for the second quarter with positive feedback from our exchange customers on the strength and holiday service support.

Robert Rietbroek: The 24.5% adjusted EBITDA margin represents a 70 basis point improvement from the year-ago period.

David Hass: For the full year 2024 forecast of continuing operations, we are increasing our revenue projection to be between $1.87 billion and $1.89 billion, with revenue growth at the midpoint of 6.1 percent. Similarly, we are increasing our full year 2024 adjusted EBITDA projection to be between $420 million and $440 million, with an implied adjusted EBITDA margin of 22.9% at the midpoint. The increase in guidance contemplates both the benefit from the strong start in the first half of the year, as well as some balance of your benefit from our business optimization program. During Q1, we discussed cost-reduction activities of approximately $2 million.

Robert Rietbroek: For the full year 2024 forecast of continuing operations, we are increasing our revenue projection to be between $1.87 billion and $1.89 billion, with revenue growth at the midpoint of 6.1%.

Robert Rietbroek: Similarly, we are increasing our full year 2024 adjusted EBITDA to be between $420 million and $440 million, with an implied adjusted EBITDA margin of 22.9% at the midpoint.

Robert Reepbroke: Our refill channel had machine uptime of 98% an increase over last quarter and our time to address service calls improved by one and a half days versus last quarter. Throughout our operations we are driving integrated business processes. During the second quarter we increased our revenue per out by five percent and units per out per day by two percent an indication of improved asset utilization, route density and positive volume and pricing improvement makes.

Speaker Change: The increase in guidance contemplates both the benefit from the strong start in the first half of the year, as well as some balance of your benefit from our business optimization program.

Robert Rietbroek: During Q1, we discussed cost reduction activities of approximately $2 million.

David Hass: And during Q2, we took action on another $2 million, bringing the total to $4 million that will be achieved within 2024. This is reflected in our adjusted EBITDA guidance increase. These savings will annualize out to approximately $8 million on a 2025 run rate basis toward our $20 million goal. We are maintaining the forecast for the 2024 CapEx guidance of approximately 7% of our revenue guidance range, plus an incremental $22.5 million of strategic CapEx.

Speaker Change: and during q two we took action on another two million dollars bring the total to four million dollars that will be achieved within two thousand and twenty four this is reflected in our adjusted ebita guidance increase

Speaker Change: These savings will annualize out to approximately $8 million on a 2025 run rate basis toward our $20 million goal.

Robert Reepbroke: The same principles are now being employed in the optimization of our refill routes enabling us to extract more value from our team of technicians and service providers. We remain focused on strategic cat-backs investments that deliver high returns. The installation of the new high efficiency production lines continues and we brought our effort up in Slovenia production line online during the quarter. The performances of the high efficiency line installations are driving the reduction of waterways at the filler and can nearly double the output capacity of the bottling line.

Speaker Change: We are maintaining the forecast of the 2024 CapEx guidance of approximately 7% of our revenue guidance range, plus an incremental $22.5 million of strategic CapEx.

David Hass: Full year 2024 cash taxes are expected to be approximately $35 million to $45 million, a $5 million increase at the midpoint, driven by an $18 million increase in the midpoint of adjusted EBITDA since our initial guidance on February 22nd. The cash tax guidance includes utilization of U.S. net operating losses, or NOLs, of which we have approximately $46 million available for use in 2024. We still expect the amount of NOLs available to be approximately $16 million in 2025 and $10 million per year in 2026 through 2029.

Speaker Change: Full year 2024 cash taxes are expected to be approximately $35 million to $45 million.

Speaker Change: a $5 million increase at the midpoint driven by an $18 million increase in the midpoint of adjusted EBITDA since our initial guidance on February 22nd.

Robert Reepbroke: We are utilizing advanced robotics to assist some of the more strenuous aspects of our plant and distribution functions. Ultimately freeing up our associates to focus on the quality aspects of their roles. The team is on track to deliver the previously announced business optimization program that will enhance our productivity and lower our overall cost to serve. While continuing to offer customers an exceptional experience. We remain committed to the annual run rate savings of $20 million by year and 2024, and David will speak to the achievements this quarter and the progress to our full year goals.

Speaker Change: the cash tax guidance includes utilization of u s net operating losses or nnols

Speaker Change: of which we have approximately 46 million available for use in 2024. We still expect the amount of NOLs available to be approximately 16 million in 2025 and 10 million per year in 2026 through 2029.

David Hass: For full year 2024, we are revising the midpoint of our net cash interest expense guidance down $5 million from a previous range of approximately $30 million to $50 million to now $25 million to $45 million. The decrease is a result of cash interest earned halfway through the year as our balance sheet remains strong and our fixed rate capital structure carrying very low interest rates of approximately 4.2% maturing in 2028 and 2029.

Speaker Change: for full year two thousand and twenty four we are revising the midpoint of our net cash interest expense guidance down five million dollars from a previous range of approximately thirty million to fifty million dollars to now twenty five million to forty five million dollars

Speaker Change: The decrease is a result of cash interest earned halfway through the year, as our balance sheet remains strong and our fixed-rate capital structure carrying very low interest rates of approximately 4.2%

Robert Reepbroke: From a sustainability perspective, we strive to source and process responsibly to protect the planet we inhabit. We will continue to implement our environmental strategy that is focused on sourcing water responsibly, converting our fleets to more eco-friendly propane, reusing, refilling, and recycling of our plastic bottles, and increasing the use of glass and aluminum as part of our product offering. We carefully monitor our withdrawal rates and we use less than 25% of the permitted withdrawal limits, ensuring the long-term viability of our 100-water sources, which include 26 of our own wells and springs.

Speaker Change: maturing in two thousand twenty eight and two thousand and twenty nine

David Hass: Additionally, we will take steps to maximize the interest income yield throughout 2024 but could experience reduced income opportunities if market available rates decline related to any macro Fed or bank rate environment decisions. Combining all of these factors, along with the core health and cash generation capacity of our business model, we are forecasting adjusted free cash flow from continuing operations of between $180 million and $190 million in 2024. The $5 million increase at the midpoint is attributed to the free cash flow conversion of the $10 million increase in our adjusted EBITDA guidance.

Speaker Change: Additionally, we will take steps to maximize the interest income yield throughout 2024, but could experience reduced income opportunities if market-available rates decline related to any macro-fed or bank-rate environment decisions.

Speaker Change: Combining all of these factors, along with the core health and cash generation capacity of our business model, we are forecasting adjusted free cash flow from continuing operations of between $180 million and $190 million in 2024.

Robert Reepbroke: We will detail these results and improvements in our 2023 Sustainability Report, which will be released later this quarter. We have a clear plan to deliver growth and profitability with a favorable balance of volume and pricing. Our unique combination of associates, assets, and resources are capable of delivering strong results that benefit all our stakeholders. We are well positioned for future success.

Speaker Change: The $5 million increase at the midpoint is attributed to the free cash flow conversion of the $10 million increase in our adjusted EBITDA guidance.

David Hass: This outlook solidifies our commitment to replace the adjusted free cash flow that was tied to the international assets sold and those held for sale in our discontinued operations. This team should be commended for the speed of achieving this goal.

Speaker Change: this outlook solidifies our commitment to replace the adjusted free cash flow that was tied to the international asseset sold and those held for sale in our discontinued operations

Speaker Change: This team should be commended for the speed of achieving this goal.

David Hass: The following three items have not been included in our 2024 guidance due to the uncertainty in timing with each discrete outcome. First, for the remaining balance of the Business Optimization Program, we remain confident in achieving the $20 million improvement on a 2025 run rate basis. Second, the remaining benefits from the additional tariff refunds outside of the amounts mentioned and received during the quarter due to the uncertain timing of the government refund process.

Speaker Change: The following three items have not been included in our 2024 guidance due to the uncertainty in timing with each discrete outcome.

Robert Reepbroke: Before I turn the call over to David to review our financial results in greater detail and provide our third quarter and a full-year 2024 outlook. I would like to once again thank all our primo water associates for their support and contribution to the excellence performance of the business.

David Hass: Third, the sale of discontinued operations, which includes our water business in Israel and our water and coffee business in the United Kingdom. As previously communicated, these businesses will remain in discontinued operations until they are sold. They are actively being marketed, and they have received interest from several parties. Prior to the announcement of the merger with Blue Triton, we had repurchased shares for $6.8 million. On a year-to-day basis, we have repurchased shares for $15.9 million.

Speaker Change: first for the remaining balance of the business optimization program we remain confident in achieving the twenty million dollar improvement

Speaker Change: on a 2025 run rate basis. Second, the remaining benefits from the additional tariff refunds outside of the amounts mentioned and received during the quarter due to the uncertain timing of the government refund process.

David Hass: With that, I will now turn the call over to David. Thanks Robert.

David Hass: As a reminder, at the end of 2023, we disposed of a significant portion of our international assets, and thus our financial results discussed today are for continuing operations only. We are not covering discontinued operations unless otherwise noted. The second quarter results of our continuing operations included revenue increasing 7.6% to $485 million, adjusted EBITDA increasing 15% to $113 million, with the adjusted EBITDA margins of 23.3%. All metrics exceeded the high end of our most recent guidance.

Speaker Change: Third, the sale of discontinued operations, which includes our water business in Israel.

Speaker Change: and our water and coffee business in the United Kingdom. As previously communicated, these businesses will remain in discontinued operations until they are sold. They are actively being marketed and have received interest from several parties.

David Hass: Within the 7.6% revenue growth, approximately 6.6 or approximately $29.8 million came from organic growth activity with the balance 1% or approximately $4.6 million coming from inorganic or acquired sources. Primo water's definition of inorganic contribution includes any acquired businesses that were closed less than 12 months ago. After 12 months, any acquired business becomes part of our normal contribution base.

Speaker Change: priortothe announcement of the merger with blue trrighton we had repurchased shares of six point eight million dollars on a year-day basis we have repurchased shares of fifteen point nine million dollars

David Hass: Subsequent to the announcement, we have suspended share repurchases for the interim period until closing. We intend, however, to issue a special dividend of approximately $0.82 per common share to Primo Water shareholders following board approval and the setting of the record date and payment date prior to the closing of the merger with Blue Triton. Recently, our board of directors authorized a quarterly dividend of nine cents per common share, a 13% increase over last year, which continues our path to a multi-year dividend step-up with an increase in our quarterly dividend per share of one cent for the third consecutive year.

Speaker Change: subsequent to the announcement we have suspended share repurchases for the interim period until closing we intend however to issue a special dividend of approximately eighty two cents per common share to preimo water shareholders following board approval

Speaker Change: and setting of the record date and payment date prior to the closing of the merger with Blue Triton.

Speaker Change: Recently, our Board of Directors authorized a quarterly dividend of nine cents per common share.

Speaker Change: a 13% increase over last year.

Speaker Change: which continues our path to the multi-year dividend step-up with an increase in our quarterly dividend per share of one cent for the third consecutive year.

David Hass: In closing, our improved financial profile and flexibility, along with a compelling long-term growth outlook, are a solid foundation for continued success. We are well positioned for the merger with Blue Triton Brands. With that, I will turn the call back over to Jon for Q&A.

Speaker Change: In closing, our improved financial profile and flexibility, along with a compelling long-term growth outlook, are a solid foundation for continued success.

David Hass: Chris. Separately, the 7.6% revenue growth, irrespective of organic or acquired means, can be split into approximately 3.1% related to volume activity and approximately 4.5% related to pricing activity. Volume contribution, in this case comes from both new customer additions or additional gallons consumed from existing customers or additional retail traffic in our exchange or refill businesses where actual customer counts are not directly known. Volume activity in the corner was strong across all of our water solutions, indicating strengths in our bulk oriented offering as well as the complimentary nature of our different water channels.

John: we are well positioned for the merger with blue triton brands with that i will turn the call back over to john for qand na

Jon Kathol: Thanks, David. As I mentioned earlier, we will not be taking live questions from analysts or investors during this call due to the proposed merger with Blue Triton. Instead, the most pertinent questions have been selected and will be addressed by Robert and David during today's call. Robert, the first question is for you. You're a few quarters into your role. How do you view this quarter's performance and what were the key takeaways?

John: Thanks, David. As I mentioned earlier, we will not be taking live questions from analysts or investors during this call due to the proposed merger with Blue Triton. Instead, the most pertinent questions have been selected and will be addressed by Robert and David during today's call.

Speaker Change: Robert, the first question is for you. You're a few quarters into your role. How do you view this quarter's performance and what were the key takeaways?

Robert Rietbroek: Thanks, John. In this macro environment and in the broader beverages category, I'm encouraged by our balanced and broad-based results, which include a combination of volume, pricing, and strength across each of our water channels. This has enabled us to deliver 7.6% overall revenue growth, broken down into 3.1% volume and 4.5% price growth. This continues to represent the nice balance that we've experienced over the last few quarters between volume and pricing action. The majority of revenue growth occurred from organic sources at 6.6% in the quarter, with inorganic contributing 1.0%.

Robert Rietbroek: Thanks, John . In this macro environment and in the broader beverages category, I'm encouraged by our balanced and broad-based results.

Speaker Change: which includes a combination of volume, pricing, and strength across each of our water channels.

David Hass: We believe that volume across our water solutions will continue to be a primary indicator of business health versus overall customer counts. Once again, we have expanded our channel disclosure to break out the price and volume splits for each of the channels versus prior year. A table of the results is included with our supplemental earnings deck. You will notice that volume gains occurred across each of the water channels and price improved except for the welcome price decline in water dispensers.

Speaker Change: This has enabled us to deliver the 7.6% overall revenue growth, broken down into 3.1% volume and 4.5% price growth.

Speaker Change: This continues to represent a nice balance that we've experienced over the last few quarters between volume and pricing actions.

Speaker Change: the majority of revenue growth occurred from organic sources at six point six percent in the quarter with inorganic contributing one point zero percent

Robert Rietbroek: You know, our associates are very focused on our growth agenda. We continue to deliver on key operating metrics of on time and full customer retention and generating organic sales additions, either with customer ads or location expansion in our retail business. Well, there are always some timing variances, quarter to quarter, in dispenser results. But we again delivered sell-through growth of 4% year-over-year. Dispenser sell-through remains a key indicator of the connectivity to our

Speaker Change: You know, our associates are very focused on our growth agenda.

David Hass: Within our channels, we had strong revenue growth of 7% in water directing and exchange and a 12% increase in our water refill and filtration channel. The other water channel, which is primarily the retail and on-premise portion of mountain valley premium spring water, was up 87%. The water dispenser business representing the sell-in of our units to the retailer declined 21%, driven by a decline of 16% from volume and expected lower wholesale prices as the tariff elimination works through our pricing architecture.

Speaker Change: we continue to deliver our key operating metrics of on time and full customer retention and generating organic sales additions either with customer adds or location expansion in our retail business

Speaker Change: well as always sometiming bearing this quth to quarter in dispenensive results

Speaker Change: We again delivered sell-through growth of 4% year-over-year. Dispenser sell-through remains a key indicator of the connectivity to our water solutions. It also implies continued momentum in future customer ads and increased volumes.

Robert Rietbroek: It also implies continued momentum in future customer ads and increased volume. We continue to make progress on business efficiencies, and I would ask David to discuss this in more detail. But overall, balancing the success of our must-win priorities and disciplined cost control while driving productivity is leading to our strong results in the quarter. In summary, our strong second quarter results and continued business momentum provide us with the confidence to increase our full year guidance for revenue, adjusted EBITDA, and free cash flow generation.

Speaker Change: We continue to make progress on business efficiencies, and I would ask David to discuss this in more detail. But overall, balancing the success of our must-win priorities and disciplined cost control while driving productivity is leading to our strong results in the quarter.

David Hass: On the heels of a very strong first quarter, through the first half of 2024, the water dispenser business is up 2% driven by volume of approximately 15% and offset by pricing of negative 13%. The other channel decline is reflective of our remaining non-core office coffee services, which is not a point of emphasis in our current model. Water dispenser sell-through or those items sold from the retailer to the end customer was approximately 260,000 units in the quarter up approximately 4%.

Speaker Change: in summary our strong second quarter results and continued business momentum providesus with the confidence to increase our full year guidance for revenue adjusted ebitda and free cash flow generation

David Hass: David, could you provide a bit more detail on the quarter and key takeaways, notably on your free cash flow?

Speaker Change: David, could you provide a bit more detail on the quarter and key takeaways, notably on your pre-cash flow?

David Hass: Sure, Jon. Thanks. You know, first, I echo Robert's view on the strength of our second quarter results. Importantly, we outperformed the high end of our Q2 guidance for revenue, adjusted EBITDA, margin, and free cash flow generation. This strong performance enables us to increase our annual revenue guidance to be between $1.87 billion and $1.89 billion, a $10 million increase at the midpoint. This now implies a 6% revenue growth rate versus fiscal 2023.

David Hass: Sure Jon, thanks. You know, first I echo Robert's view on the strength of our second quarter results. Importantly, we outperformed the high end of our Q2 guidance for revenue, adjusted EBITDA, margin, and free cash flow generation. This strong performance enables us

David Hass: As a reminder, our business model includes two approaches of selling the water dispenser. The rental of the water dispenser to residential and commercial customers in our water direct business and the sale of water dispensers through our retail partners and online. Both approaches enable growth in water solutions and contribute to our predictable and recurring revenue growth. We have been particularly focused on growth with our brick and mortar retail partners, where we have greater visibility into the connectivity to our water solutions and higher connectivity compared to e-commerce channels.

Speaker Change: to increase our annual revenue guidance to be between $1.87 billion and $1.89 billion, you know, a $10 million increase raise at the midpoint. This now implies a 6% revenue growth rate versus fiscal 2023.

David Hass: We knew heading into 2024 that we had strong momentum from our fourth quarter results, and our strong first half start to fiscal 2024 confirms that that momentum is continuing. Gross margin for the quarter increased 110 basis points to 65.6%, with improvements driven by volume leverage through our operations, as well as our business optimization efforts taking effect. Similarly, adjusted EBITDA increased 14.9% to $113 million year-over-year. This is nearly double the revenue growth rate; adjusted EBITDA margins increased to 23.3%, up 150 basis points year over year.

Speaker Change: We knew heading into 2024 that we had strong momentum from our fourth quarter results, and our strong first half start to fiscal 2024 confirms that that momentum is continuing.

David Hass: As discussed in previous calls, our water dispenser category was previously under a 25% import tariff, but was reclassified last year and a refund process from the US government was initiated. When we received funds, we record them in the same manner as the original transactions. During Q2, we did not receive any refunds reflecting the inconsistent nature of the government refund process. When including last year's payments, cumulatively through the second quarter of 2024, we have received approximately $10.8 million. We remain confident that refunds will be received, but we cannot predict the timing of receipt.

Speaker Change: Gross margin for the quarter increased 110 basis points to 65.6%.

Speaker Change: with improvements driven by volume leverage through our operations as well as our business optimization efforts taking effect.

Speaker Change: Similarly, adjusted EBITDA increased 14.9% to $113 million year-over-year. This is nearly double the revenue growth rate.

Speaker Change: adjusted EBITDA margins increased to 23.3%, up 150 basis points year-over-year.

David Hass: Our improved operating performance enables us to increase our annual adjusted EBITDA guidance by $10 million to between $420 and $440 million. The midpoint of $430 million implies adjusted EBITDA growth of nearly $50 million over last year, an improvement of nearly 13 percent. This is more than double our revenue growth rate, illustrating the operating leverage in our model. The midpoint of our revised revenue and adjusted EBITDA guidance implies full-year margins of 22.9 percent.

Speaker Change: Our improved operating performance enables us to increase our annual adjusted EBITDA guidance by $10 million to between $420 and $440 million.

David Hass: As we look further into the operational metrics and as Robert mentioned earlier, our commitment to improving the customer experience continues to result in improved on-time info or OTIF rates. The ability to serve our customers in the most efficient manner, possible, is a critical driver of both our short and long-term profitability and our automated route optimization or ARO tool continues to yield efficiencies. In the US, units per route per day increased approximately 2% compared to Q2 of 2023, and revenue per route increased more than 5% compared to Q2 of 2023.

Speaker Change: The midpoint of $430 million implies adjusted EBITDA growth of nearly $50 million over last year, an improvement of nearly 13%. This is more than double our revenue growth rate, illustrating the operating leverage in our model.

Speaker Change: The midpoint of our revised revenue and adjusted EBITDA guidance implies full year margins of 22.9%, a 140 basis point improvement versus 2023.

David Hass: 140 basis point improvement versus 2023. When I step back, I'm particularly pleased with our focus on improving free cash flow as a conversion of our EBITDA. Year to date, we have generated $102 million in adjusted free cash flow, which is a $73 million increase versus the same period last year. While we expect continued positive free cash flow during the second half of 2024, as you may recall, we posted outsized adjusted free cash flow during the third quarter of 2023.

Speaker Change: When I step back, I'm particularly pleased with our focus on improving free cash flow as a conversion of our EBITDA.

Speaker Change: Year-to-date, we have generated $102 million in adjusted free cash flow, which is a $73 million increase versus the same period last year.

David Hass: Our scale and leverage continued to improve as we service more customers with higher volume per route. Additionally, water-direct customer attention increased to approximately 86%, and increased versus the end of last year and the second quarter of 2023.

Speaker Change: While we expect continued positive free cash flow during the second half of 2024, as you may recall, we posted outsized adjusted free cash flow during the third quarter of 2023.

David Hass: This was largely due to working capital enhancements and better inventory management that we continue to benefit from today. As we lap these gains in the second half of 2024, we expect a more measured outcome relative to the gains in the second quarter. Our broad-based earning strength allows us to raise our annual guidance on adjusted free cash flow by $5 million to between $180 million and $190 million, which is based on a strong conversion of our $10 million increase in our adjusted EBITDA guidance.

Speaker Change: This was largely due to working capital enhancements and better inventory management that we continue to benefit from today. As we lap these gains in the second half of 2024, we expect a more measured outcome relative to the gains in the second quarter.

David Hass: Shifting to our balance sheet and cash flows our net leverage ratio at the end of the second quarter on a trailing 12-month basis stood at approximately 1.6 times our adjusted EBITDA, a 50 basis point improvement from year and 2023. Similarly, our liquidity remains strong with approximately $603 million of cash on the balance sheet, approximately $615.5 million when considering the cash within our discontinued operations, and a fully unused cash flow revolver. Specific to our cash flow revolver, we recently extended the maturity of our revolver to September 2026, which will allow us time to establish the proper capital support financing for NUCO once the merger is completed.

Speaker Change: Our broad-based earning strength allows us to raise our annual guidance on adjusted free cash flow by $5 million to between $180 million to $190 million, which is based on a strong conversion of our $10 million increase in our adjusted EBITDA guidance.

David Hass: Overall, I am pleased to confirm that we have fully replaced the adjusted free cash flow of last year's results, which included the benefit of both our international operations, which we subsequently divested. This validates our decision to divest those assets for $575 million in gross proceeds, focusing on the North America market to improve our efficiencies, lower our net leverage, and significantly improve our free cash flow conversion. Our balance sheet remains healthy, with a low net average of approximately 1.6 times and more than $600 million in cash and an undrawn revolving credit facility.

Speaker Change: Overall, I am pleased to confirm that we have fully replaced the adjusted free cash flow of last year's results, which included the benefit of both our international operations, which we subsequently divested. This validates our decision.

Speaker Change: to divest those assets for $575 million in gross proceeds.

David Hass: In the quarter, we paid approximately $21.4 million of interest net of interest income. On a full-year basis, while we will be a net interest expense payer, we are quite pleased with both the low interest rate carried on our senior notes and our ability to generate interest income in today's yield environment.

Speaker Change: focusing on the North America market to improve our efficiencies.

Speaker Change: lower our net leverage and significantly improve our free cash flow conversion. Our balance sheet remains healthy with low net leverage of approximately 1.6 times and more than 600 million dollars in cash and an undrawn revolving credit facility.

Robert Rietbroek: Thanks, David. Robert, can you talk about any product lines, customer segments, or geographic regions that contributed to the increased sales?

David Hass: During the second quarter, we completed the sale of AMIA foods, our UK food and drink business, for $75.5 million, approximately $91 million when including dividends extracted from the business. After the close of Q2, we successfully completed the sale of our Portugal business for 19.2 million dollars, of the Portugal Sale. Due to the timing of the Portugal Sale, the funds are not reflected in our Q2 balance sheet. We remain on target to complete the sale of the businesses in Israel and the UK by year end.

Speaker Change: Thanks David. Robert, can you talk about any product lines, customer segments, or geographic regions that contributed to the increased sales?

Robert Rietbroek: Well, it was broad-based and balanced. We saw growth in all water channels. I think it's important to note that our overall revenue growth was over 9% when you exclude the other channel from our results. The channel we refer to as OTHER is primarily our non-core office coffee service and some co-packing business, which has been declining as we de-emphasize and de-prioritize these businesses.

Robert Rietbroek: Sure, John . Well, it was broad-based and balanced.

Robert Rietbroek: We saw growth in all water channels. I think it's important to note that our overall revenue growth was over 9% when you exclude the other channel from our results.

Robert Rietbroek: The channel we refer to as OTHER is primarily our non-core office coffee service.

Speaker Change: and some co-packing business, which has been declining as we de-emphasize and de-prioritize these businesses.

David Hass: The Israel process is being run by an investment bank and interest levels are strong. Our adjusted free cash flow results for the second quarter totaled $73 million, a year over year improvement of $34 million. The improvement was primarily driven by increased earnings, reduced net interest expense, and improved working capital, offset by increased levels of capital expenditures, and higher cash taxes due to fewer NOLs as we shift to a net tax payer relative to prior years.

Robert Rietbroek: You know, our customer base actually remains very balanced with a mix that is 50% residential and 50% commercial. Our customer base saw growth in the quarter. We didn't see any geographical anomalies in our growth.

Speaker Change: Now our customer base actually remains very balanced with mix that is 50% residential and 50% commercial.

Robert Rietbroek: It really is balanced across North America. Our dispenser business showed a quarterly decline but remains up 15% year-to-date on the volume of dispensers sold into retailers due to order timing variants. The dispenser sell-through was up 4% and is a true indicator of the health of the business. We're excited about the improved consumer value of our dispensers as a result of the tariffs rolling off and prices reducing. This should drive incremental consumers to the category, which is a good sign for the growth of future water customers.

Speaker Change: Customer basis saw growth in the quarter. We didn't see any geographical anomalies in our growth. It really is balanced across North America.

Speaker Change: Our dispenser business showed a quarterly decline, but remains up 15% year-to-date on the volume of dispensers sold into the retailers due to order timing variance.

David Hass: As a reminder, our increase in year over year adjusted free cash flow is different than how that growth contributes to our full year 2024 guidance, which we'll all discuss in a few minutes. We are incredibly pleased with the free cash flow momentum on a year over year basis. The results for the second quarter reflect a series of receivables improvements and improved inventory levels that began in the second half of last year and are still driving benefit today.

Speaker Change: The dispensers sell through was about a 4% and is a true indicator of the health of the business

Speaker Change: We're excited about the improved consumer value of our dispensers as a result of the tariffs rolling off and prices reducing.

Speaker Change: This should drive incremental consumers to the category, which is a good sign for the growth of future water customers.

Robert Rietbroek: The one product and brand that continues to really stand out is Mountain Valley Springwater, sold at retail and on-premises. Within our Otter Water Channel, it was up 87% this quarter after growing 57% last quarter. Continued success in the larger format versions of Mountain Valley also contributes to growth within our water-directed channel.

Speaker Change: The one product and brand that continues to really stand out is Mountain Valley Springwater, sold at retail and on-premise.

David Hass: As supported in our supplemental earnings deck, in the third quarter of 2023, we posted adjusted free cash flow of $92.7 million in our continuing operations, which was the primary contribution for our full year 2023 results of $157.8 million. Because of this outsized contribution, as we head into the third quarter of 2024, we expect a more measured outcome per quarter in our free cash flow for the second half of 2024. In summary, we are pleased with our ability to maintain a high conversion of our adjusted EBITDA into free cash flow in our 2024 guidance contemplates this outcome.

Speaker Change: Within our Otter Water Channel, it was up 87% this quarter after growing 57% last quarter.

Speaker Change: Continued success in the larger format versions of Mountain Valley also contributed to growth within our water direct channel.

Robert Rietbroek: It continues to attract more consumers and fulfills a super-premium niche with its glass and now aluminum bottle offering. We've expanded our capacity over the last year, and we're still racing to catch up with consumer and customer demands. Its natural alkalinity and crisp taste make it a huge hit with consumers.

Speaker Change: It continues to attract more consumers and fulfills a super-premium niche with its glass and now aluminum bottle offering.

Speaker Change: We've expanded our capacity over the last year and we're still racing to catch up with consumer and customer demand.

Speaker Change: It's natural alkalinity and crisp taste make it a huge hit with consumers. We're enabling this 150-year-old brand to reach its full potential by driving household penetration and retail and on-premise distribution.

Robert Rietbroek: We're enabling this 150-year-old brand to reach its full potential by driving household penetration and retail and on-premise distribution. Now, overall, I think our improved service levels are driving increased volume, retention, and even sentiment scores are 94% on time at full rates or an improvement over previous periods, which drives increased revenue, improves customer satisfaction, and provides a more favorable opinion of our company. By ensuring our customers get their deliveries when expected, consistently finding our products on the retailer's shelves, or finding our machines working and ready to dispense water, we fulfill their demand for high-quality drinking water. Specific actions taken to improve our service metrics include six- and seven-day deliveries when necessary, filling empty shelf space, and improving refill machine uptime. We're doing better, but I see room to improve even further.

David Hass: Once again, as I transition into our 2024 outlook, any forward guidance will strictly be for continuing operations. Discontinent operations will not be covered to help bridge our 2024 guidance, a table of 2023 financial results for continuing operations by quarter has been provided in the appendix of our supplemental earnings slides. We are forecasting third quarter revenue guidance to be between $485 million and $495 million. We expect Q3 adjusted EBITDA to be between $115 million and $125 million, with an implied adjusted EBITDA margin of 24.5% at the midpoint.

Speaker Change: Now overall, I think our improved service levels are driving increased volume, retention, and even sentiment scores.

Speaker Change: our ninety-four percent on time in full rates or an improvement over previous periods which drives increased revenue improves customer satisfaction and provides a more favorable opinion of our company

Speaker Change: By ensuring our customers get their deliveries when expected, consistently finding our products on the retailer's shelves, or finding our machines working and ready to dispense water, we fulfill their demand for high quality drinking water.

Speaker Change: Specific actions taken to improve our service metrics include six and seven day deliveries when necessary, filling empty shelf space, and improving refill machine uptime. We're doing better, but I see room to improve even further.

David Hass: The 24.5% adjusted EBITDA margin represents a 70 basis point improvement from the year go period. For the full year 2024 forecast of continuing operations, we are increasing our revenue projection to be between $1.87 billion and $1.89 billion, with revenue growth at the midpoint of 6.1%. Similarly, we are increasing our full year 2024 adjusted EBITDA to be between $420 million and $440 million, with an implied adjusted EBITDA margin of 22.9% at the midpoint.

David Hass: Thanks, Robert. David, can you give us an update on the sale of your international businesses and any M&A activity?

David Hass: Absolutely. As we mentioned on our deal announcement call several weeks ago... We sold the UK-based AMIA Foods business in June. This was for roughly $91 million in proceeds when you include dividends pulled from the business. And last month, which happened after our, you know, close of Q2, we sold the Portugal business for approximately $19.2 million. Both divestitures added to our already strong cash position, which is now over $600 million. We remain actively marketing the remaining assets in both Israel and the Eden UK business and remain on track to divest these businesses later this year.

David Hass: Absolutely. As we mentioned on our deal announcement call several weeks back, we sold the UK-based AMIA Foods business in June .

David Hass: This was for roughly $91 million in proceeds when you include dividends pulled from the business.

David Hass: And last month, which happened after our, you know, close of Q2, we sold the Portugal business for approximately $19.2 million.

David Hass: The increase in guidance contemplates both the benefit from the strong start in the first half of the year, as well as some balance of your benefit from our business optimization program. During Q1, we discussed cost reduction activities of approximately $2 million and during Q2, we took action on another $2 million, bringing the total to $4 million that will be achieved within 2024. This is reflected in our Adjusted EBITDA guidance increase. These savings will annualize out to approximately $8 million on a 2025 run-ray basis toward our $20 million goal.

Speaker Change: Both divestitures added to our already strong cash position, which is now over $600 million. We remain actively marketing the remaining assets in both Israel and the Eden UK business and remain on track to divest these businesses later this year.

Robert Rietbroek: Robert, you mentioned last quarter that your annual revenue guidance of a 5.5% increase included 1.5% to 2% volume, and the balance was price. Now you've increased your annual revenue guidance to 6%. Is the increase driven by volume or price?

Speaker Change: Robert, you mentioned last quarter that your annual revenue guidance of a 5.5% increase included 1.5% to 2% volume and the balance was priced. Now you've increased your annual revenue guidance to 6%. Is the increase driven by volume or price?

Robert Rietbroek: Yeah, the increase in our fiscal 2024 revenue guidance is driven by the incremental volume growth that we've been experiencing. Volume growth has been strong and resilient year to date, which provides confidence in our updated revenue guidance. The revised guidance can be broken out into 3% volume growth and 3% pricing growth.

David Hass: We are maintaining the forecast of the 2024 CAPEX guidance of approximately 7% of our revenue guidance range plus an incremental $22.5 million of strategic CAPEX. Full year 2024 cash taxes are expected to be approximately $35 million to $45 million, a $5 million increase at the midpoint driven by an $18 million increase in the midpoint of Adjusted EBITDA since our initial guidance on February 22nd. The cash tax guidance includes utilization of US net operating losses or NOLs of which we have approximately $46 million available for use in 2024.

Robert Rietbroek: The increase in our fiscal 2024 revenue guidance is driven by incremental volume growth that we've been experiencing.

Speaker Change: Our volume growth has been strong and resilient year-to-date, which provides confidence in our updated revenue guidance. The revised guidance can be broken out into 3% volume growth and 3% pricing growth this year.

Robert Rietbroek: Now, let's transition the discussion to talk about the aspects of the merger with Blue Triton. Robert, I'll start with you. It's been several weeks since the announcement. Can you provide some color on the feedback you've received from investors and further views on the announced merger with Blue Triton?

Speaker Change: Now let's transition the discussion to talk about the aspects of the merger with Blue Triton. Robert, I'll start with you. It's been several weeks since the announcement. Can you provide some color on the feedback you've received from investors and further views on the announced merger with Blue Triton?

Robert Rietbroek: Sure, I'm excited to talk about it. The term that keeps coming up is compelling.

Robert Rietbroek: Sure, I'm excited to talk about it. The term that keeps coming up is compelling. We're hearing that it's a natural fit and makes sense from a customer, consumer, associate, supplier, and investor perspective.

David Hass: We still expect the amount of NOLs available to be approximately $16 million in 2025 and $10 million per year in 2026 through 2029. For full year 2024, we are revising the midpoint of our net cash interest expense guidance down $5 million from a previous range of approximately $30 million to $50 million to now $25 million to $45 million. The decrease is a result of cash interest earned halfway through the year as our balance sheet remains strong and our fixed rate capital structure carrying very low interest rates of approximately 4.2% in 2028 and 2029. Additionally, we will take steps to maximize the interest income yield throughout 2024, but could experience reduced income opportunities if market available rates decline related to any macro fed or bank rate environment decisions.

Robert Rietbroek: We're hearing that it's a natural fit and makes sense from a customer, consumer, associate, supplier, and investor perspective. It diversifies the product offering of both Primo Water and Blue Triton into more channels and categories where we can offer the consumer an incredible array of branded offerings, purified, spring, and super premium spring water in various packed formats. We've received great feedback from investor calls and interactions with our research analysts. We're hearing positive reactions to the proposed combination on the merits and the potential benefits that come from the expected synergy.

Speaker Change: It diversifies the product offering of both Primo Water and Blue Triton into more channels and categories where we can offer the consumer an incredible array of branded offerings, purified spring and super premium spring water in various packed formats.

Speaker Change: We've received great feedback from investor calls and interactions with our research analysts.

Speaker Change: We're hearing positive reactions to the proposed combination on the merits and the potential benefits that come from the expected synergies.

Robert Rietbroek: While we're not in a position to comment on the financial outlook of the new company at this stage, we're excited to be creating a pure play health hydration company with a portfolio of well-known brands covering the spectrum from purified to spring and value to premium. The Combined Company will be a steward of its water resources as a sustainability leader. From our production and distribution footprint to our ability as a combined company to elevate the customer experience, we're excited to provide a diverse array of water solutions for residential, commercial, and retail customers.

Speaker Change: while we're not in the positionions of comment on the financial outlook of the new company at this stage we're excited to be creating a pure play health hydration company with a portfolio a well-known brands covering the spectrum from purified to spring and value to premium

Speaker Change: The combined company will be a steward of its water resources as a sustainability leader.

David Hass: Combining all of these factors along with the core health and cash generation capacity of our business model, we are forecasting adjusted free cash flow from continuing operations of between $180 million and $190 million in 2024. The $5 million increase at the midpoint is attributed to the free cash flow conversion of the $10 million increase in our Adjusted EBITDA guidance. This outlook solidifies our commitment to replace the adjusted free cash flow that was tied to the international assets sold and those held for sale in our discontinued operations.

Speaker Change: From our production and distribution footprint to our ability as a combined company to elevate the customer experience, we're excited to provide a diverse array of water solutions for the residential, the commercial, and the retail customers.

Robert Rietbroek: You know, Jon, healthy hydration is on trend, and access to high-quality drinking water sources is increasingly important. That means more demand for our products in the future, and our product offering will give consumers another choice for hydration across multiple occasions, day parts, delivery methods, and formats.

John: john healthy hydration is on trendsd and access to high-quality drinking water sources is increasingly import that means more demand for our products in the future

John: our product offerings give consumers and another choice for hydration across multiple occasions dayparts delivery methods and formats

David Hass: This team should be commended for the speed of achieving this goal.

David Hass: David, can you bring us up to speed on the mechanics of the merger?

David Hass: The following three items have not been included in our 2024 guidance due to the uncertainty in timing with each discrete outcome. First, for the remaining balance of the business optimization program, we remain confident in achieving the $20 million improvement on a 2025 run rate basis. Second, the remaining benefits from the additional tariff refunds outside of the amount mentioned and received during the quarter due to the uncertain timing of the government refund process.

David Hass: David, can you bring us up to speed on the mechanics of the merger?

David Hass: Sure. Since announcing the deal on June 17th... Both teams are working on the regulatory and Primo shareholder approval processes. At Primo Water, we created a page on the investor relations section of our corporate website dedicated to the proposed merger, which contains documents, filings, presentations, and updates. And we'll continue to provide updates through that means.

David Hass: Sure, since announcing the deal on June 17th, both teams are working on the regulatory and Primo shareholder approval processes.

Speaker Change: At PrimaWater, we created a page on the investor relations section of our corporate website dedicated to the proposed merger, which contains documents, filings, presentations, and updates. And we'll continue to provide updates through that mean.

David Hass: We submitted our Hart-Scott-Rodino filing on July 2nd and our Canadian filing on July 9th. We are actively working to obtain our required approvals as promptly as possible. To support that, a preliminary proxy statement has been filed with the SEC, which among other things includes information regarding Blue Triton's historical financial performance and pro forma financial information regarding the combined company. The proxy statement is in preliminary form and subject to review and comment by the SEC.

David Hass: Third, the sale of discontinued operations which includes our water business in Israel and our water and coffee business in the United Kingdom. As previously communicated, these businesses will remain in discontinued operations until they are sold. They are actively being marketed and have received interest from several parties.

David Hass: We submitted our Hart-Scott-Rodino filing on July 2nd and our Canadian filing on July 9th. We are actively working to obtain our required approvals as promptly as possible.

David Hass: To support that, a preliminary proxy statement has been filed with the SEC, which, among other things, includes information regarding Blue Triton's historical financial performance and pro forma financial information regarding the combined company.

David Hass: Prior to the announcement of the merger with Blue Triton, we had repurchased shares of $6.8 million. On a year-to-day basis, we have repurchased shares of $15.9 million. Subsequent to the announcement, we have suspended share repurchases for the interim period until closing.

David Hass: The proxy statement is, in preliminary form, and subject to review and comment by the SEC. Revisions to the proxy statement before it is finalized may be material.

David Hass: Revisions to the proxy statement before it is finalized may be material. We intend to hold our shareholder meeting as soon as possible once we clear SEC comments and the proxy statement is finalized. We are happy with how things have been progressing, and we'll keep you updated along the way.

David Hass: We intend, however, to issue a special dividend of approximately 82 cents per common share to Primo Water shareholders following Board approval and setting of the record date and payment date prior to the closing of the merger with Blue Triton. Recently, our Board of Directors authorized a quarterly dividend of $0.9 per common share a 13% increase over last year which continues our path to the multi-year dividend step-up with an increase in our quarterly dividend per share of $1.00 for the third consecutive year.

David Hass: We intend to hold our shareholder meeting as soon as practical once we clear SEC comments and the proxy statement is finalized.

David Hass: We are happy with how things have been progressing and we'll keep you updated along the way.

Robert Rietbroek: Robert, can you share some insights on Blue Triton's financial performance?

Robert Rietbroek: Well, the preliminary proxy statement that was filed with the SEC earlier this morning and that is available on the investor relations section of our website includes, amongst other things, information regarding Blue Trident's financial performance during the second quarter. Whether from the results in the proxy filing or when we look at the Q2 retail scan data, which shows growth in sales dollars and strong volume. We can see that Blue Triton's business is performing well.

Robert Rietbroek: Well, the preliminary proxy statement that was filed with the SEC earlier this morning, and that is available on the investor relations section of our website, includes, amongst other things, information regarding Blue Triton's financial performance.

David Hass: In closing, our improved financial profile and flexibility along with a compelling long-term growth outlook are a solid foundation for continued success. We are well-positioned for the merger with Blue Triton brands.

Speaker Change: during the second quarter. Whether from the results in the proxy filing or when we looked at the Q2 retail scan data, which shows growth in sales dollars and strong volume,

David Hass: We can see that Blue Triton's business performs well.

Lara: With that, I will turn the call back over to John for Q&A. Thanks, David.

Robert Rietbroek: Here's one for both of you. What about concerns about Primo Water getting back into retail with the merger?

Speaker Change: Here's one for both of you. What about concerns of Primo Water getting back into retail with the merger?

Robert Reepbroke: As I mentioned earlier, we will not be taking live questions from analysts or investors during this call due to the proposed merger with Blue Triton. Instead, the most pertinent questions have been selected and will be addressed by Robert and David during today's call. Robert, the first question is for you. You're a few quarters into your role. How do you view this quarter's performance and what were the key takeaways? Thanks, John. In this macro environment and in the broader beverages category, I have encouraged by our balanced and broad-based results, which includes a combination of volume, pricing and strength across each of our water channels.

Robert Rietbroek: But let me go first, John, on that one. We believe the Blue Triton retail offering is a high-quality asset. We're not worried about getting back into retail with the merger. In fact, it was an important part of the deal rationale. Blue Triton has a solid retail business, and we think it complements our Primo portfolio well. It features two $1 billion plus brands: Bolling Springs and Pure Life.

Speaker Change: But let me go first, Jon, on that one. We believe the Blue Triton retail offering is high-quality assets, and we're not worried about getting back into retail with the merger.

Speaker Change: In fact, it was an important part of the deal rationale. Blue Triton has a solid retail business, and we think it complements our Primo portfolio well. It features two $1 billion plus brands.

Robert Rietbroek: And the retail scan performance of Blue Triton shows that they have performed well. And we believe that One Rock has done a good job strengthening the retail business of Blue Triton and producing favorable trends in the business. From a sustainability standpoint, we believe both companies are leading the way in corporate accountability. Blue Triton uses a high amount of recycled content in its bottles. The target is going even higher as recycled plastic content becomes more affordable and available. Primo Water promotes the hydration and wellness benefits of drinking quality water. Both companies are protective of their water sources and strive to be good stewards of the environment.

Speaker Change: Bowling Springs and Pure Life

Speaker Change: and the retail scan performance of Blue Triton shows that they have performed well. We believe that One Rock has done a good job strengthening the retail business of Blue Triton and producing favorable trends in the business.

Robert Reepbroke: This has enabled us to deliver the 7.6% overall revenue growth, broken down into 3.1% volume and 4.5 price growth. This continues to represent a nice balance that we've experienced over the last few quarters between volume and pricing actions. The majority of revenue growth occurred from organic sources at 6.6% in the quarter with inorganic contributing 1.0%. Our associates are very focused on our growth agenda. We continue to deliver on the key operating metrics of on time in full customer retention and generating organic sales additions, either with customer ads or location expansion in our retail business.

Speaker Change: From a sustainability standpoint, we believe both companies are leading the way in corporate accountability. Blue Triton uses a high amount of recycled content in their bottles.

Speaker Change: with targets going even higher as recycled plastic content becomes more affordable and available.

Speaker Change: Primo Water promotes the hydration and wellness benefits of drinking quality water.

Speaker Change: Both companies are protective of their water sources and strive to be good stewards of the environment.

David Hass: Sure, John. The Blue Triton Ready Refresh or HOD business within their company emphasizes convenience and service in the large and fragmented category. The proposed merger will expand our reach and allow us to serve more customers with high-quality drinking water. Overall, Blue Triton is mostly comparable to Primo Water when accounting for the difference in the capitalization of bottles. Blue Triton expenses their bottles as they blow mold their large format bottles on site, whereas Primo Water buys their bottles from a third party and capitalizes on the bottle purchase.

Speaker Change: David.

Jon Kathol: Sure, Jon. You know, the Blue Triton Ready Refresh, or HOD, business within their company emphasizes convenience and service in the large and fragmented category.

Robert Reepbroke: While there's always some timing variance is quarter to quarter in dispenser results, we again delivered south through growth of 4%. Year over year. The expensive south through remains a key indicator of the connectivity to our water solutions. It also implies continued momentum in future customer ads and increased volume. James. We continue to make progress on business efficiencies, and I would ask David to discuss this in more detail, but overall, balancing the success of our must-win priorities and discipline cost control while driving productivity is leading to our strong results in the quarter.

Speaker Change: The proposed merger will expand our reach and allow us to serve more customers with high-quality drinking water.

Speaker Change: Overall, Blue Triton's money comparable to Primo Water's when accounting for the difference in the capitalization of bottles. Blue Triton expenses their bottles as they blow mold their large format bottles on-site, whereas Primo Water buys their bottles from a third party and capitalizes the bottle purchases.

David Hass: You know, this roughly equates to a 200 basis point difference in EBITDA margins between the companies. On the retail side, the business that Primo exited in 2022 was primarily one and two and a half gallon multi-serve bottles and largely a private label co-packing business. This presented challenging financials and lacked nationwide scale, driving the business to be margin dilutive. Contrast that with Blue Triton's retail business today. The retail scan data results suggest that the retail business performs well.

Speaker Change: You know, this roughly equates to a 200 basis point difference in EBITDA margins between the companies.

Jon Kathol: On the retail side, the business that Primo exited in 2022 was primarily one- and two-and-a-half-gallon multi-serve bottles and largely a private-label co-packing business.

David Hass: Dan Summary, our strong second quarter results and continued business momentum, provided us with the confidence to increase our full-year guidance for revenue, adjusted EBITDA and free cash flow generation. David, could you provide a bit more detail on the quarter and keep takeaways notably on your free cash flow? Sure, Jon, thanks. First, I echo Robbert's view on the strength of our second quarter results. Importantly, we outperformed the high end of our Q2 guidance for revenue, adjusted EBITDA, margin, and free cash flow generation.

Jon Kathol: This presented challenging financials and lacked nationwide scale, driving the business to be margin dilutive. Contrast that with Blue Triton's retail business today. Retail scan data results suggest that the retail business performs well.

David Hass: David, can you talk about the special dividend that Primo Water shareholders will be receiving? What about share repurchases and dividends?

David Hass: Absolutely. As we previously announced, we intend to issue a special dividend of up to $133 million, or $0.82 per share, following board approval and the setting of the record date and payment date prior to the closing of the proposed merger with Blue Triton. The special dividend essentially replaces the cash and then some that would have been returned to shareholders through shareware purchases absent the merger with Blue Triangle. At this point, we repurchased $6.8 million in shares in the second quarter before the announcement of the proposed merger.

David Hass: This strong performance enables us to increase our annual revenue guidance between 1.87 billion and 1.89 billion, you know, a $10 million increase raise at the midpoint. This now implies a 6% revenue growth rate versus fiscal 2023. We knew heading into 2024 that we had strong momentum from our fourth quarter results. And our strong first half start to fiscal 2024 confirms that that momentum is continuing. Gross margins for the quarter increased 110 basis points to 65.6% with improvements driven by volume leverage through our operations as well as our business optimization efforts taking effect.

Speaker Change: The special dividend essentially replaces the cash, and then some, that would have been returned to shareholders through shareware purchases, absent the merger with Blue Triangle.

David Hass: At this point, we repurchased $6.8 million in shares in the second quarter before the announcement of the proposed merger.

David Hass: Separately, yesterday, the Primo Water Board announced the approval of our regular quarterly dividend of $0.09 per share. This represents a 13% increase over last year. After the merger closing, the new co-board expects to provide insight into the long-term dividend policy.

David Hass: Separately, yesterday, the Primo Water Board announced the approval of our regular quarterly dividend of nine cents per share. This represents a 13% increase over last year.

Speaker Change: After the merger closing, the new co-board expects to provide insight into long-term dividend policy.

David Hass: Similarly, adjusted EBITDA increased 14.9% to $113 million year-over-year. This is nearly double the revenue growth rate. A adjusted EBITDA margins increased to 23.3% up 150 basis points year-over-year. Our improved operating performance enables us to increase our annual adjusted EBITDA guidance by $10 million to between 420 and 440 million. The midpoint of $430 million implies adjusted EBITDA growth of nearly $50 million over last year and improvement of nearly 13%. This is more than double our revenue growth rate, illustrating the operating leverage in our model.

Robert Rietbroek: Robert, any thoughts on the back half of 2024 and plans for 2025?

David Hass: Robert, any thoughts on the back half of 2024 and plans for 2025?

Robert Rietbroek: Yeah, we and Blue Triton continue to operate as two separate companies. At Primo Water, we're focused on finishing 2024 strong, and we will continue to sharpen our consumer-centric approach, driving volume growth. I want to see the team continue to innovate and create a more frictionless customer experience. Performing at a high level and executing the fundamentals will set us up for success in the balance of this year and into next as we prepare for the merger.

Robert Rietbroek: Yeah, we and Blue Triton continue to operate as two separate companies.

David Hass: David, same question to you. What's your focus for the back half of 2024 and into 2025?

Robert Rietbroek: At Primo Water, we're focused on finishing 2024 strong and we will continue to sharpen our consumer-centric approach, driving volume growth. I want to see the team continue to innovate and to create a more frictionless customer experience.

David Hass: Performing at a high level and executing the fundamentals will set us up for success in the balance of this year and into next as we prepare for the merger.

David Hass: The midpoint of our revised revenue and adjusted EBITDA guidance implies full-year margins of 22.9%, 140 basis point improvement versus 2023. When I step back, I'm particularly pleased with our focus on improving free cash flow as a conversion of our EBITDA. Year-to-date, we have generated $102 million in adjusted free cash flow, which is a $73 million increase versus the same period last year. While we expect continued positive free cash flow during the second half of 2024, as you may recall, we posted outside adjusted free cash flow during the third quarter of 2023.

David Hass: David, same question to you. What's your focus for the back half of 2024 and into 2025?

David Hass: Sure, you know, as Robert mentioned, clearly we want to finish 2024 strong, and the Primo Water team is focused on achieving the expected $20 million in savings in what we call the business optimization program. This quarter, as I mentioned, we achieved additional savings in the second half of 2024 that will annualize out to another $4 million on a 2025 basis. This brings our total 2025 tracking to $8 million with continued confidence in achieving our full run rate outcome.

David Hass: Sure, you know, as Robert mentioned, clearly we want to finish 2024 strong and the Primo Water team is focused on achieving the expected $20 million in savings in what we call the business optimization program.

Speaker Change: This quarter, as I mentioned, we achieved additional savings in the second half of 2024 that will annualize out to another $4 million on a 2025 basis.

David Hass: This brings our total 2025 tracking to $8 million with continued confidence on achieving our full run rate outcome.

David Hass: As we head into 2025, we need to position ourselves to prepare for the proposed merger with Blue Triton, subject to obtaining the required approvals. We believe that it bodes well for customers, consumers, associates, and investors when both parties are performing well prior to the merger. As always, cash generation remains top of mind.

David Hass: This was largely due to working capital enhancements and better inventory management that we continue to benefit from today. As we lap these gains in the second half of 2024, we expect a more measured outcome relative to the gains in the second quarter. Our broad-based earning strength allows us to raise our annual guidance on adjusted free cash flow by $5 million to between $180 million to $190 million, which is based on a strong conversion of our $10 million increase in our adjusted EBITDA guides.

David Hass: As we head into 2025, we need to position ourselves to prepare for the proposed merger with Blue Triton.

David Hass: subject to obtaining the required approvals. We believe that it bodes well for customers, consumers, associates, and investors when both participants are performing well prior to the merger. As always, cash generation remains top of mind.

Robert Rietbroek: Robert, any closing thoughts?

Robert Rietbroek: Thank you for attending today's call and for your continued interest in Primo Water. As I hope you can tell, our team is focused on enhancing our customers' experience and driving sustainable growth. The path we have started is the right one to build on, and we have the tools to win. We have a lot of work ahead of us, and I, along with our team, are excited about the potential created by a Blue Trident merger. Thank you for your interest in Primo Water and joining us on the next step on our exciting water journey.

Robert Rietbroek: Thank you for attending today's call and for your continued interest in Primo Water.

David Hass: Overall, I am pleased to confirm that we have fully replaced the adjusted free cash flow of last years results, which included the benefit of both our international operations, which we subsequently divested. This validates our decision to divest those assets for $575 million in gross proceeds, focusing on the North America market to improve our efficiencies, lower our net leverage, and significantly improve our free cash flow conversion. Our balance sheet remains healthy with low net leverage of approximately 1.6 times and more than $600 million in cash and an undrawn revolving credit facility.

Robert Rietbroek: As I hope you can tell, our team is focused on enhancing our customers' experience and driving sustainable growth.

Robert Rietbroek: The path started is the right one to build on, and we have the tools to win. We have a lot of work ahead of us, and I, along with our team, are excited for the potential created by a Blue Triton merger. Thank you for your interest in Primo Water and joining us in the next step on our exciting water journey.

Lara: Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line. Have a lovely day, and David Hass.

Speaker Change: Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Robert Reepbroke: Thanks, David. Robert, can you talk about any product lines, customer segments, or geographic regions that contributed to the inquiry sales? Sure, Jon. Well, it was broad-based and balanced. We saw growth in all water channels. I think it's important to note that our overall revenue growth was over 9% when you exclude the other channel from our results. The channel we refer to as other is primarily our non-core office coffee service, and some co-packing business, which has been declining as we deemphasize and de-prioritize these businesses.

Operator: [music]

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Speaker Change: Have a lovely day!

David Hass: ?? ?? ?? ?? ??

Operator: I'll see you in the next video. Bye! Bye! Bye! Bye! Bye!

Robert Reepbroke: Now, our customer base actually remains very balanced with mix that is 50% residential and 50% commercial. Customer bases saw growth in the quarter. We didn't see any geographical anomalies in our growth. It really is balanced across North America. Our dispenser business, so to quarterly decline, but remains up 15% year-to-date on the volume of dispensers sold into the retailers due to order timing variance. The dispenser sell through is about a 4% and is the true indicator of the health of the business.

Robert Reepbroke: We're excited about the improved consumer value of our dispensers as a result of the tariffs rolling off and prices reducing. This should drive incremental consumers to the category, which is a good sign for the growth of future water customers. The one product and brand that continues to really stand out is Mountain Valley Springwater, sold at retail and on-premise. Within our other water channel, it was up 87% this quarter after growing 57% last quarter.

Speaker Change: oh thank time

Robert Reepbroke: Continuous success in the larger format versions of Mountain Valley also contributed to growth within our water direct channel. It continues to attract more consumers and fulfills a super premium niche with its class and now aluminum bottle offering. We've expanded our capacity over the last year and we're still racing to catch up with consumer and customer demand. It's natural alkalinity and crisp taste make it a huge hit with consumers. We're enabling this 150-year-old brand to reach its full potential by driving household penetration and retail and on-premise distribution.

Robert Reepbroke: Now, overall, I think our improved service levels are driving increased volume, retention and even sentiment scores are 94% on time in full rates or an improvement over previous periods, which drives increased revenue, improves customer satisfaction and provides a more favorable opinion of our company. By ensuring our customers get their deliveries when expected, consistently finding our products on the retailer shelves or finding our machines working and ready to dispense water, we fulfill their demand for high quality drinking water. Specific actions taken to improve our service metrics include six and 70 deliveries when necessary, filling empty shelf space and improving refill machine uptime.

Robert Reepbroke: We're doing better, but I see room to improve even further. Thanks, Robert.

David Hass: David, can you give us an update on the sale of your international businesses and any M&A activity? Absolutely. As we mentioned on our deal announcement call several weeks back, we sold the UK-based Ania Foods business in June. This was for roughly $91 million in proceeds when you include dividends pulled from the business. And last month, which happened after our close of Q2, we sold the Portugal business for approximately $19.2 million. Both the vestitures added to our already strong cash position, which is now over $600 million. We remain actively marketing the remaining assets in both Israel and the Eden UK business and remain on track to invest these businesses later this year.

Robert Reepbroke: Robert, you mentioned last quarter that your annual revenue guidance of a 5.5% increase included 1.5% to 2% volume and the balance was priced. Now you've increased your annual revenue guidance to 6%. Is the increase driven by volume or price? Yeah, the increase in our fiscal 2024 revenue guidance is driven by incremental volume growth that we've been experiencing. The volume growth has been strong and resilient year to date, which provides confidence in our updated revenue guidance. The revised guidance can be broken out into 3% volume growth and 3% pricing growth this year.

Robert Reepbroke: Now let's transition the discussion to talk about the aspects of the merger with Blue Triton. Robert, I'll start with you. It's been several weeks since the announcement. Can you provide some color on the feedback you've received from investors and further use on the announced merger with Blue Triton? Sure, I'm excited to talk about it. The term that keeps coming up is compelling. We're hearing that it's a natural fifth and makes sense from a customer, consumer, associate, supplier and investor perspective.

Robert Reepbroke: It diversifies the product offering of both premium water and Blue Triton into more channels and categories where we can offer the consumer an incredible array of branded offerings, purified spring and super premium spring water and various pack formats. We've received great feedback from investor calls and interactions with our research analysts. We're hearing positive reactions to the proposed combination on the merits and the potential benefits that come from the expected synergies. While we're not in the position to comment on the financial outlook of the new company at this stage, we're excited to be creating a pure play, health, hydration company with a portfolio of well-known brands covering the spectrum from purified to spring and value to premium.

Robert Reepbroke: The combined company will be a steward of its water resources as a sustainability leader. From our production and distribution footprint to our ability as a combined company to elevate the customer experience, we're excited to provide a diverse array of water solutions for the residential, the commercial, and the retail customers. Jon, healthy hydration is on trends and access to high-quality drinking water sources is increasingly important. That means more demand for our products in the future. Our product offerings give consumers another choice for hydration across multiple occasions, day parts, delivery methods, and formats.

David Hass: David, can you bring us up to speed on the mechanics of the merger? Sure. Since announcing the deal on June 17th, both teams are working on the regulatory and pre-moved shareholder approval processes. At Primo Water, we created a page on the Investor Relations section of our corporate website dedicated to the proposed merger, which contains documents, filings, presentations, and updates, and will continue to provide updates through that meeting. We submitted our HART Scott-Rodino filing on July 2nd and our Canadian filing on July 9th.

David Hass: We are actively working to obtain our required approvals as promptly as possible. To support that, a preliminary proxy statement has been filed with the SEC, which among other things includes information regarding Blue Triton's historical financial performance, and Proform of Financial Information regarding the combined company. The proxy statement is in preliminary form and subject to review and comment by the SEC. Revisions to the proxy statement before it is finalized may be material.

David Hass: We intend to hold our shareholder meeting as soon as practical, once we clear SEC comments and the proxy statement is finalized. We are happy with how things have been progressing, and we'll keep you updated along the way.

Robert Reepbroke: Robert, can you share some insights on Blue Triton's financial performance? Well, the preliminary proxy statements that was filed with the SEC earlier this morning, and that is available on the Investor Relations section of our website, includes amongst other things information regarding Blue Triton's financial performance during the second quarter. Whether from the results in the proxy filing or when we look at the Q2 retail scam data, which shows growth in sales dollars and strong volume. We can see that Blue Trident has business performed well.

Robert Reepbroke: Here's one for both of you. What about concerns of Primo Water getting back into retail with the merger? Let me go first, Jon, on that one. We believe the Blue Trident retail offering is a high quality assets, but we're not worried about getting back into retail with the merger. In fact, it was an important part of the deal right now. Blue Trident has a solid retail business and we think it's compliments our Primo portfolio well.

Robert Reepbroke: It features two one billion dollar plus brand, Poland Springs and Pure Life, and the retail scan performance of Blue Trident shows that they have performed well. We believe that one rock is done a good job strengthening the retail business of Blue Trident and producing favorable trends in the business. From a sustainability standpoint, we believe both companies are leading the way in corporate accountability. Blue Trident uses a high amount of recycled content in their bottles with targets going even higher as recycled plastic content becomes more affordable and available.

Robert Reepbroke: Primo Water promotes the hydration and wellness benefits of drinking quality water. Both companies are protective of their water sources and strive to be good stewards of the environment. David? Sure, Jon. The Blue Trident ready-refresh or HOD business within their company emphasizes convenience and service in the large and fragmented category. The proposed merger will expand our reach and allow us to serve more customers with high quality drinking water. Overall, Blue Trident is morally comparable to Primo waters when accounting for the difference in the capitalization of bottles.

Robert Reepbroke: Blue Trident expenses their bottles as they blow mold, their large format bottles on site whereas Primo Water buys their bottles from a third party and capitalizes the bottle purchases. This roughly equates to a 200 basis point difference in EBITOM margins between the companies. On the retail side, the business that Primo edited in 2022 was primarily one and two-and-a-half gallon multi-serve bottles and largely a private label co-packing business. This presented challenging financials and lacked nationwide scale, driving the business to be margin diluted. Contrast that with Blue Trident's retail business today. Retail scan data results suggest that the retail business performs well.

David Hass: David, can you talk about the special dividend that Primo water shareholders will be receiving? What about share repurchases and dividends? Absolutely. As we previously announced, we intend to issue a special dividend of up to $133 million or 82 cents per share following board approval and the setting of the record date and payment date prior to the closing of the proposed merger with Blue Trident. The special dividend essentially replaces the cash and then some that would have been returned to shareholders through share repurchases absent the merger with Blue Trident.

David Hass: At this point, we repurchased $6.8 million in shares in the second quarter before the announcement of the proposed merger. Separately, yesterday, the Primo water board announced the approval of our regular quarterly dividend of nine cents per share. This represents a 13 percent increase over last year.

Robert Reepbroke: After the merger closing, the new co-board expects to provide insight into the long-term dividend Robbert, any thoughts on the back half of 2024 and plans for 2025? Yeah, we and Blue Trison continue to operate as two separate companies. At Primo Water we're focused on finishing 2024 strong and we will continue to sharpen our consumer centric approach driving volume growth. I want to see the team continue to innovate and to create a more frictionless customer experience.

Robert Reepbroke: The performing at a high level and executing the fundamentals will set us up for success in the balance of this year and into next as we prepare for the merger. David, same question to you. What's your focus for the back half of 2024 and into 2025? Sure, as Robert mentioned clearly we want to finish 2024 strong and the Primo Water team is focused on achieving the expected $20 million in savings and what we call the business optimization program.

Robert Reepbroke: This quarter as I mentioned we achieved additional savings in the second half of 2024 that will annualize out to another $4 million on a 2025 basis. This brings our total 2025 tracking to $8 million with continued confidence on achieving our full run rate outcome. As we head into 2025 we need to position ourselves to prepare for the proposed merger with Blue Trident subject to obtaining the required approvals. We believe that it bodes well for customers, consumers, associates and investors when both participants are performing well prior to the merger. As always cash generation remains top of mind.

Robert Reepbroke: Robert any closing thoughts? Thank you for attending today's call and for your continued interest in Primo Water. As I hope you can tell our team is focused on enhancing our customers experience and driving sustainable growth. The path started is the right ones to build on and we have the tools to win. We have a lot of work ahead of us and I along with our team are excited for the potential created by Blue Trident merger.

Robert Reepbroke: Thank you for your interest in Primo Water and joining us in the next step on our exciting water journey. Thank you, sir.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.

Operator: Have a lovely day.

Operator: [inaudible]

Q2 2024 Primo Water Corp Earnings Call

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