Q3 2024 Primo Water Corp Earnings Call
Good morning, My name is Elvis and I will be your conference operator today at this time I would like to welcome everyone to the Primo Water Corporation third.
Third quarter 'twenty 'twenty four earnings conference call.
All lines have been placed on mute to prevent any background noise.
Speaker Change: After the Speakers' remarks, there'll be a question and answer session if you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
Speaker Change: We'd like to withdraw your question press the star followed by the number two thank.
Speaker Change: Thank you I'll now turn the call over to John <unk>, Vice President Investor Relations.
Speaker Change: Welcome to Primo Water Corporation third quarter 2024 earnings Conference call. All participants are currently in listen only mode.
Speaker Change: Call is being webcast live on Primo water's website at Primo water Corp, Dot com and will be available there for playback.
Speaker Change: 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.
Speaker Change: 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 third quarter earnings announcement released earlier this morning or on the Investor Relations section of the company's website at Primo water Corp Dot com.
Speaker Change: In addition to slides accompanying today's webcast to assist you throughout our discussion. We have included a copy of the presentation and our supplemental earnings deck on our website.
Speaker Change: The supplemental deck will be broken into two sections. The current continuing operations of Primo water and information related to the transaction between Primo water and Blue Trident brands.
Speaker Change: I am accompanied by Robert Rebroke, Primo waters, Chief Executive Officer, David <unk>, Chief Financial Officer.
Speaker Change: Today's financial results represent Primo water's third quarter Standalone results from continuing operations.
Speaker Change: Start their prepared remarks, Robert and David will discuss the Q3 performance of Primo water followed by Robert's thoughts ahead of the proposed transaction with <unk> brands.
Speaker Change: Note that Blue Triton's third quarter financial information was posted earlier this morning on their website at Blue Triton Dot com.
Robert: With that I will now turn the call over to Robert.
Robert Rebroke: Thank you John and good morning, everyone.
Robert Rebroke: I begin I want to take a moment to extend my sympathies.
Speaker Change: To those impacted by the recent hurricanes in the southeast and the extreme loss of life and property.
Speaker Change: First and foremost our thoughts are with those still suffering and we hope for a speedy recovery for those affected.
Speaker Change: The efforts of our associates to deliver high quality drinking water to people in these hard hit areas was admirable and I want to personally thank them.
Speaker Change: We are working with local charities and transport companies to donate water and if so far been able to provide hundreds of thousands of bottles of water to those affected across the southeast.
Speaker Change: There is strong demand for our water and it serves a critical need during natural disasters like wildfires floods and hurricanes.
Speaker Change: Our commitment to aid those in need is unwavering the.
Speaker Change: The resilience of people and associates in these affected communities.
Speaker Change: Marketable and we are proud to support them.
Speaker Change: Earlier this week, we held a special shareowner meeting for the purpose of improving our transaction with <unk> brands.
Speaker Change: Earlier this week, we held a special shareholder meeting for the purpose of approving our transaction with Blue Triton Brands.
Speaker Change: Share owners approved the transaction with strong support and obviously recognized the strategic rationale of combining two great companies, allowing us to better serve our stakeholders.
Speaker Change: We have now received all necessary approvals, including court approval of the plan of arrangements for the transaction and aside from a few remaining customary closing conditions. We are ready to begin operations as the new Primo brands Corporation with closing expected to occur.
Speaker Change: <unk> Tomorrow November eight.
Speaker Change: The Primo water stock will continue to trade throughout the day on the eight and we expect a new company Primo brands to begin trading with a new ticker symbol of P. R. M. B on the New York Stock Exchange next Monday November 11.
Speaker Change: I'll share more of my thoughts on the transaction later.
Speaker Change: But first I wanted to take you through the details of Primo water third quarter.
Speaker Change: Another great quarter marked by robust balanced growth and continued strength across the business and organization.
Speaker Change: Total revenue of $511 million increased 8.8% <unk>.
Speaker Change: Consisting of volume growth of 5% and pricing growth of three 8%.
Speaker Change: Revenue gains were driven by organic growth of seven 4% and inorganic growth of one 4%.
Speaker Change: Demonstrating the strength across our water solutions offerings, and the health of our consumer and category.
Speaker Change: Revenue exceeded the high end of our previous guidance by $16 million and compare to the broader beverage category I am pleased that we continued to grow revenue with balance between volume and price.
Speaker Change: Adjusted EBITDA was $125 million up 11, 4% versus the prior year and increased faster than the rate of revenue growth and matched the high end of our guidance.
Speaker Change: The resulting adjusted EBITDA margin was 24, 4% a 60 basis point increase over last year's margin of 23, 8%.
Speaker Change: From a macro perspective, our consumers remained resilient when compared to other consumer packaged goods companies, including notably other beverage companies.
Speaker Change: We continue to see accelerated demand for our products and services as consumers focus on healthy hydration and high quality beverages.
Speaker Change: We remain frontline focus.
Speaker Change: And it has allowed us to achieve our commitment to grow the business profitably.
Speaker Change: The results are a direct reflection of the efforts of our associates and their commitment to our customers and our must win priorities.
Speaker Change: With that let us discuss the specific progress of each of our must win priorities that I identified at the start of the year.
Speaker Change: The first must win is to provide a superior customer experience with the goal to yield net organic growth and units are gallons consumed across our water portfolio.
Speaker Change: We are focused on acquiring and maintaining high value customers and driving annual gallon growth.
Speaker Change: Our relentless focus on fulfilling our customers' needs and desire for high quality drinking water is successfully driving increased consumption.
Speaker Change: We are seeing strong demand from our consumers across all channels from our value offering of water sold at a refill station to a Super premium Mountain Valley spring water delivered in multi format glass.
Speaker Change: And aluminum bottles direct to their door or sold at retail and at various on premise locations.
Speaker Change: Our continuing focus on mountain Valley, which I spoke about in past quarters continues to deliver impressive results.
Speaker Change: During the third quarter, we more than doubled our mountain valley retail revenue.
Speaker Change: Driven by sales of our convenience named pack single serve 16 ounce aluminum bottles, which are selling at whole foods stores throughout the country.
Speaker Change: We also sold more to our water direct customers, where we continue to see high levels of mountain Valley demand for our five gallon two and a half gallon multi serve and single use products.
Speaker Change: In addition, we've expanded our distribution for mountain Valley, and grocers, such as H E. B in Texas and will continue to expand in 2025, as we anticipate strong consumer demand continuing.
Speaker Change: We are consistently enhancing various touch points to improve the customer experience our upgraded my water plus App now also available in Spanish.
Speaker Change: As a refresh design and enhanced features such as easier access to customer support.
Speaker Change: We have expanded our customer experience center coverage to offer support six days a week.
Speaker Change: We have increased our availability to assist customers through our chat functionality, making it even easier for them to reach us.
Speaker Change: The reaction to our improved customer experience is encouraging our Google business and trust pilot scores have improved year over year.
Speaker Change: We're always seeking to expand the ways, we reach and interact with consumers in Q3, we tested reaching potential consumers through the social platform next door.
Speaker Change: Connecting the premium water delivery service to the platform you use to stay informed about your community.
Speaker Change: We are seeing high levels of engagement and planning to launch additional test markets to understand conversion rates before rolling out nationally.
Speaker Change: The second most when it's to be the preferred water solutions partner.
Speaker Change: 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.
Speaker Change: We have an offering to meet and satisfy each of our customers needs and budgets.
Speaker Change: Customer and volume growth starts with increasing the number of customers and locations and water direct exchange refill and the sale of water dispensers at retail, which drives productivity across our portfolio of water solutions the.
Speaker Change: The increase in customers and locations across our channels will drive future volume growth.
Speaker Change: During the third quarter, we were able to add water direct customers and secure additional display racks within our exchange channel and retail stores to support capacity growth, resulting in 8% growth in the channel for the quarter.
Speaker Change: Our refill and filtration channel continues to show steady and consistent performance with seven 1% growth in the third quarter.
Speaker Change: This provides further evidence that our product is critical for our customers to satisfy their needs for daily assessments of high quality drinking water.
Speaker Change: Meeting the customer where they are includes offering high quality water in a format that fits their needs and lifestyle.
Speaker Change: The third most whaler is operational excellence.
Speaker Change: Specifically, we're focused on building an optimized organizational structure.
Speaker Change: And operating systems that prioritize our associate safety and wellbeing.
Speaker Change: A liver the highest quality products and services and support efficient scaling and automation as we continue to grow.
Speaker Change: Maintaining a safe environment is our top priority as it is essential for our associates to thrive and for them to continue delivering exceptional service to our customers.
Speaker Change: During the third quarter, we continued to implement six and seven day delivery schedules as we moved into our traditionally busy period of December.
Speaker Change: Our on time in full rate of 93% and our water direct and exchanged channel was up from 89% in the prior year.
Speaker Change: Our refill channel maintained machine uptime of 98%.
Speaker Change: Turing product availability for our customer base.
Speaker Change: Production capacity and efficiency are vital to supporting the growth of our business in the past two years, we have invested in a full upgrade to five of our production lines, yielding higher efficiency and lower cost per unit.
Speaker Change: We have a clear plan to deliver growth and profitability with a good balance of volume and pricing.
Speaker Change: Our resilient business model is a unique combination of associates assets and resources that are capable of delivering results that benefit all our stakeholders.
Speaker Change: We are well positioned for future success as we step into the next phase of our business combination with Blue <unk> brands to create premium brands Corporation.
Speaker Change: Before I turn the call over to David I would like to once again, thank all of our Primo water associates for their support and contribution to the excellent performance of the business.
Speaker Change: Their dedication reflects the culture, we have built that are centered on customer service and a commitment to operational excellence.
David: With that I will now turn the call over to David.
David: Thanks, Robert before I cover our third quarter results I would first like to quickly reflect on the past year, just a year ago, we were updating investors on the sale of the majority of our international businesses.
Speaker Change: This was a catalyst to drive improved free cash flow and enhance the margin profile of our business. It.
Speaker Change: It also helped set the stage to renew our focus on the North American market, where we have ample runway for growth.
Speaker Change: We are very excited for the pending transaction with Blue Triton.
Speaker Change: This will provide the necessary scale to further our transformation as a company the.
Speaker Change: The tremendous thank you to all parties involved during this journey and we look forward to communicating on behalf of Primo brands in the near future.
Speaker Change: With that let me transition back to the financial results of Primo water.
Speaker Change: The third quarter results of our continuing operations included revenue, increasing eight 8% to $511 million.
Speaker Change: Adjusted EBITDA, increasing 11, 4% to $125 million with adjusted EBITDA margins of 24, 4%.
Speaker Change: All metrics were above or at the high end of our previous guidance and the adjusted EBITDA margins reflect our focus on driving optimization and efficiencies in the business.
Speaker Change: Within the eight 8% revenue growth approximately seven 4% or approximately $35 million.
Speaker Change: <unk> from organic growth activity with the balance one, 4% or approximately $6 million coming from Nick or acquired sources.
Speaker Change: Single waters definition of inorganic contribution includes any acquired businesses that were closed less than 12 months ago.
Speaker Change: After 12 months any acquired business becomes part of our normal contribution base.
Speaker Change: Currently the eight 8% revenue growth irrespective of organic or acquired means can be split into approximately 5% related to volume activity and approximately three 8% related to pricing activity <unk>.
Speaker Change: 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.
Speaker Change: Volume activity in the quarter was strong across all our water solutions, indicating strength in our bulk oriented offering as well as the complementary nature of our different price tiers.
Speaker Change: A table of our channel disclosure results is included with our supplemental earnings deck.
Speaker Change: You will notice that volume gains occurred across each of the water channels and price improved except for the welcome price decline and water dispensers.
Speaker Change: Within our channels, we had strong revenue growth of 8% in water direct an exchange and a seven 1% increase in our water refill and filtration channel.
Speaker Change: The other water channel, which is primarily the retail and on premise portion of Mountain Valley premiums spring water was up 102, 2%.
Speaker Change: The water dispenser business, representing the sell in of our units to the retailer increased 13, 3%.
Speaker Change: The other channel decline is reflective of our remaining noncore 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 238000 units in the quarter down approximate.
Speaker Change: The five 6% as a reminder, our business model includes two approaches of selling the water dispenser.
Speaker Change: <unk> of the water dispenser to residential and commercial customers and our water direct business and the sale of water dispensers through our retail partners and online.
Speaker Change: With approaches enabled growth in our water solutions and contribute to our predictable and recurring revenue growth.
Speaker Change: This quarter sell in results helped confirm the category strength in the eyes of the retailer, while timing variability will exist quarter to quarter between sell in and sell through.
Speaker Change: We've 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: 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.
Speaker Change: During Q3, we did not receive any refunds, reflecting the inconsistent nature of the government refund process with.
Speaker Change: When including last year's payments cumulatively through the third quarter of 2024, we have received approximately $10 8 million inclusive of interest income.
Speaker Change: Total funds outstanding are approximately $7 $1 million.
Speaker Change: We remain confident that refunds will be received but we cannot predict the timing of receipt.
Speaker Change: 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 <unk> rates.
Speaker Change: The ability to serve our customers efficiently is critical driver of both our short and long term profitability and our automated route optimization arrow tool continues to yield efficiencies.
Speaker Change: During the third quarter, we increased our revenue per route by 2% while units per route declined by a single unit as a result of expanded route coverage to support our water exchange business and maintain high service metrics.
Speaker Change: Additionally, water direct customer retention remains at approximately 86%.
Speaker Change: Slightly higher than at the end of last year in the third quarter of 2023.
Speaker Change: Shifting to our balance sheet and cash flows our net leverage ratio at the end of the third quarter on a trailing 12 month basis stood at approximately one five times, our adjusted EBITDA, a 60 basis point improvement from year end.
Speaker Change: Similarly, our liquidity remains strong with approximately $667 million of cash on the balance sheet approximately.
Speaker Change: Approximately $671 million when considering the cash within our discontinued operations and a fully unused cash flow revolver.
Speaker Change: We remain on target to complete the sale of businesses in Israel, and the U K by year end.
Speaker Change: Our adjusted free cash flow results for the third quarter totaled $60 million a year over year decline of $32 million.
Speaker Change: The decline in adjusted free cash flow was driven by lapping last year's positive onetime step up in improved AR collections as we shifted billing closer to the time of delivery as well as an increase in cash taxes totaling approximately $15 $8 million due to fewer Nols as we.
Speaker Change: Shifting to our net taxpayer relative to prior years and change in net working capital attributable to growth.
Speaker Change: More importantly for the nine months ended September 28, 2024, adjusted free cash flow totaled $162 million.
Speaker Change: The significant year over year increase of $41 million driven by increased earnings.
Speaker Change: Reduced net interest expense and.
Speaker Change: And improved working capital offset by higher cash taxes, and slightly increased level of capital expenditures.
Speaker Change: Regarding the pending transaction with Blue Triton brands, we plan to communicate our financial outlook for the new Primo brand in early 2025, as we work to bring these two great companies together well ahead of our originally estimated schedule.
Speaker Change: As of the closing of the transaction Primo water in its current form will no longer be publicly held and we will begin the migration of our accounting recognition standards to match those of Blue Triton, the accounting acquirer of record in the transaction.
Speaker Change: When we report full year 2024 results for premium brands in February of 2025, we will also provide supplemental disclosures to show how both primo water and Blue Triton brands separately performed during 2024.
Speaker Change: As the remaining 2020 for full year guidance values of Primo water are directionally relevant to the new company <unk> brands, we remain confident in affirming that primo water is on pace to achieve all previous financial estimates across revenue adjusted EBITDA and adjusted free cash flow.
Speaker Change: This would also confirm that the full year adjusted free cash flow of continuing operations would have fully offset the adjusted free cash flow divested from our international businesses, even with the outstanding tariff receivables that we still anticipate receiving from the U S government.
Speaker Change: No shares were repurchased in the third quarter and on a year to date basis, we have acquired approximately $15 $9 million worth of our shares.
Speaker Change: On October 15, we announced a special dividend of <unk> 82 per common share to Primo water shareowners of record on November five 2024 payable on November 21 2024.
Speaker Change: In closing, our improved financial profile and flexibility along with a compelling long term growth outlook and the growth potential from our transaction with Blue Triton are a solid foundation for the future success of the new combined company Primo brands with that I will turn the call back over to Rob.
Robert Rebroke: For his thoughts on the pending transaction with <unk>.
Robert Rebroke: Thanks, David.
Speaker Change: I look forward to leading the new Primo brands Corporation with its team of World Class Associates earlier. This week Primo water shareholders decisively approved the transaction with Blue <unk> brands.
Speaker Change: The combination of these companies creates a leading branded beverage company that is well positioned to drive growth with a highly competitive portfolio of brands and unique vertically integrated manufacturing and distribution network to deliver superior customer service.
Speaker Change: As demonstrated by the respective Q3 financial results both companies. After this transaction from a position of strength.
Speaker Change: Next Monday November 11th we expect to begin trading on the New York stock exchange under the ticker symbol of P. R. M b leveraging complimentary aspects of both legacy companies Primo water and Blue <unk> brands.
Speaker Change: The new company will be U S domiciled as a Delaware Corporation.
Speaker Change: I am pleased that the progress in defining the new Primo brands organization has taken place teams have been diligent in their integration planning efforts to hit the ground running upon closing.
Speaker Change: After the transaction was announced we created working teams from both organizations that were tasked with identifying opportunities and planning to create an optimized structure to capture value across the organization once we close.
Speaker Change: We believe premium brands is positioned for success as the leading branded beverage company in North America with a leadership position in retail residential commercial and away from home.
Speaker Change: We believe the combined company's positioned to deliver long term growth transform efficiencies and generate superior financial returns with Premier brands, a unique platform diversified assets and operations and experienced executive team with represented.
Speaker Change: <unk> from both companies.
Speaker Change: We also have an exceptional board of directors led by our new Chairman Dean Metropolis.
Speaker Change: Raimo brands will have an iconic portfolio of brands, including two established billion dollar brands pure life in Poland Springs, and is well positioned to be the leading player in the U S bottled water category.
Speaker Change: We will have an array of brand offerings that includes regionally years, such as Arrow had deer Park Iron Mountain Zarqa, and Zephyr Hills, and other purified brands like Primo water and sparkling <unk>.
Speaker Change: We also have a mix of flavored water brands, including <unk> and splash.
Speaker Change: In our retail business, our established beverage brands are part of the fabric of America with six brands over 100 years old and for dating back to the eight hundreds that are responsibly sourced with packaging materials that includes industry, leading recycled plastic content aluminum.
Speaker Change: <unk> class and available and large format reusable bottles.
Speaker Change: We also have a strong direct to customer platform, which includes the sale and rent of dispensers commercial residential and away from home beverage delivery services.
Speaker Change: Other exchange program, where consumers can purchase and returned our multi use bottles directly or in store water refill self serve business, where consumers can fill their own bottles, using our dispensers inside and outside stores and water filtration, where consumers can have a unit installed at their residential.
Speaker Change: <unk> or commercial location.
Speaker Change: As a combined company, we will be able to provide even more branded beverage solutions anytime any place anywhere.
Speaker Change: We will be positioned to benefit from highly attractive market dynamics in U S bottled water.
Speaker Change: Our scale will allow us to become a stronger strategic partner with our retailers, helping them manage the bottled water category for growth.
Speaker Change: Positive consumer trends include healthier lifestyle choices more frequent consumption occasions, a preference for premium and functional products, a growing demand for quality and value and an increased adoption of digital engagements.
Speaker Change: As a vertically integrated company Primo brand sources from numerous springs.
Speaker Change: <unk> and municipal water supplies.
Speaker Change: Managed water resources for long term sustainability.
Speaker Change: <unk> to protect more than 27000 acres of watershed and wetlands area owned by the company for preservation and to help assure a steady supply of clean safe drinking water.
Speaker Change: Beyond this products.
Speaker Change: <unk> brands will actively support local communities through charitable efforts, particularly during natural disasters the.
Speaker Change: The company's broad geographic presence and strong local ties will enable it to make a tangible impact nationwide.
Speaker Change: Consumers continued to care most about quality taste.
Speaker Change: Safety and convenience.
Speaker Change: And the stable and attractive commercial backdrop, we believe the company will have the resources and scale to accelerate growth with multiple levers across our combined platform <unk>.
Speaker Change: Including growing our existing and new customer base and expanding retail locations across our footprint in North America.
Speaker Change: Our channel mix will be well.
Speaker Change: Diversified.
Speaker Change: And balance between retail residential commercial and away from home.
Speaker Change: We plan to expand into new channels and high potential geographies.
Speaker Change: As access to safe high quality drinking water becomes a challenge in more areas across the country. We are committed to expanding to meet growing demand.
Speaker Change: We plan to compete in the high growth areas of the functional flavored and premium segments within the branded beverages category either through innovation or acquisition.
Speaker Change: We will apply best practices from both companies and utilize machine learning and analytics to optimize our demand forecast production planning network and route design, all while enhancing the customer experience.
Speaker Change: Additionally, we plan to implement several optimization initiatives across various business functions.
Speaker Change: Positioning us to realize an estimated minimum $200 million of cost synergies on a run rate basis within three years of closing or earlier.
Speaker Change: Overall, we are well positioned to enhance margins accelerate free cash flow and utilize our capital more efficiently.
Speaker Change: We are committed to reducing our net leverage ratio in the medium term following closing.
Speaker Change: The new company that we're building is truly competitive and differentiated compared to our peers.
Speaker Change: It's well positioned to both generate sales with our valued retail partners as well as direct to customer last mile delivery to residential commercial away from home and small format customers leveraging our vast national branch network and company owned fleets.
Speaker Change: We are not dependent on the declining carbonated soft drink segments as our focus is on healthy hydration solutions across multiple price points and packaging formats.
Speaker Change: We believe we are positioning ourselves to remain resilient during times of economic volatility and a persistent inflationary macroeconomic environments.
Speaker Change: Across both companies, we have continued to deliver sustained volume and revenue growth across our combined portfolio.
Speaker Change: Demonstrating strength and resilience of demand for our brands and breadth and depth of our offerings.
Speaker Change: We will share more information in the coming months regarding Primo brands and I am excited to report our integration progress.
Speaker Change: The intent for us to move decisively with speed agility and a focus on results, while maintaining high levels of customer service with that I'll turn the call back to John to take us through the Q&A.
John: Thanks, Robert in order to address as many of your questions as possible. We would ask for a limit of one question and one follow up if you would like to ask additional questions. You are encouraged to rejoin the queue and we will address as many questions as time allows.
John: Operator, please open the line for questions.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question press Star then the number one on your telephone keypad, you will hear a prompt to indicate that your hand has been raised if you would like to withdraw your question press the star followed by the number too.
Speaker Change: One moment. Please for your first question.
Speaker Change: We have Daniel Moore from CJS Securities.
Speaker Change: Please go ahead.
Speaker Change: Thank you Robert Thank David Thanks for the color and taking my questions.
Speaker Change: Maybe Robert just jumping off.
Speaker Change: From where you just left off can you talk a little bit about.
Speaker Change: Not only the merger highlights, but strategic initiatives Youre planning for the first say 12 months of the New company. When you think about the 200 million as you described minimum.
Speaker Change: Cost synergies over the next three plus years wondering if you can rank order them in terms of timing and which of the synergy buckets.
Speaker Change: Plan to attack early on.
Speaker Change: Yes.
Speaker Change: Thanks, Dan Great question.
Speaker Change: So I'm feeling very very good about the merger.
Speaker Change: Just to recap, we're going to create a leading branded beverages company.
Speaker Change: We have a very competitive portfolio of brands.
Speaker Change: Heidi of formats that will play across different price points also wanted to say, we're vertically integrated and we have really strong coast to coast manufacturing and distribution network across North America.
Speaker Change: I think.
Speaker Change: As you look at strategic priorities.
Speaker Change: We're positioned to accelerate growth.
Speaker Change: Deliver superior products and services for our customers and consumers.
Speaker Change: We'll.
Speaker Change: Aim to be a best in class U S beverage company.
Speaker Change: We have a very iconic brand portfolio, we have recognized brands 1 billion dollar brands like Poland spring in pure life.
Speaker Change: That will be driving growth behind.
Speaker Change: We have high growth premium brands like Saratoga Mountain Valley, which have great distribution opportunities.
Speaker Change: We have other valuable brands in the spring and the purified space with significant growth potential.
Speaker Change: So.
Speaker Change: When it comes to strategic initiatives, our goal would be to drive sustainable long term shareholder value creation as we capture these transformative operational efficiencies and achieve those synergy goals that you referred to are whilst delivering strong financial results.
Speaker Change: I think.
Speaker Change: The deal is compelling from for customers for consumer for the associates for the investors is really good for all the stakeholders and as.
Speaker Change: As you know the access to high quality drinking water.
Speaker Change: <unk> is increasingly important because of drought.
Speaker Change: <unk> infrastructure municipal water emergencies, and with our brands that are six of those are over 100 years old there'll be seven next year. When Sparklet turns 100, and we'll have four brands dating back all the way through 2008, hundreds and they are part of the American fabric. So the brand portfolio is incredible and that's going to be a bit.
Speaker Change: Part of the drivers of our growth.
Speaker Change: Also our production facilities are in excellent shape the assets have been well maintained systems are in good shape and if you look at.
Speaker Change: This strategic initiatives for the first year. It really is quite simple we want to ensure strong leadership organization and a very strong frontline team with a winning culture, a safe and secure work environment for our associates and.
Speaker Change: And we want to ensure the same or better level of customer service to the end customer.
Speaker Change: We will work on routes fleets and production optimization. These are the key components of the synergy and value capture.
Speaker Change: As I said, we're going to leverage the portfolio of brands to drive revenue synergies and grow market share and we'll let you know more once the deal is closed after tomorrow.
Speaker Change: Now with regards to.
Speaker Change: The synergies we've communicated $200 million in the first three years and obviously everybody is asking whether we can get them faster.
Speaker Change: Well since since receiving the regulatory approval, we have been actively working together on non commercial synergy opportunities and upon close we will begin the review of commercial.
Speaker Change: Revenue opportunities and then we expect to communicate further about the progress, but certainly our goal would be to get more than that and get them faster, but right now we're committing to $200 million in the first three years, but we want to make sure we're prudent and understanding all the technical attributes involved.
Speaker Change: And we intend to set the company up for long term success, and we will define long term targets and articulate those in Todd.
Speaker Change: Thanks, Ed.
Speaker Change: Really helpful and then maybe one follow up.
Speaker Change: I believe blue Triton reported sales growth, 4% double digit EBITDA growth.
Speaker Change: Obviously solid momentum maybe just compare the momentum youre seeing there over the last three to six months to what <unk> been able to accomplish obviously very different.
Speaker Change: Mix and geographic concentrations, but any comment in terms of their.
Speaker Change: <unk> Standalone.
Speaker Change: Momentum as we go into the merger would be helpful. Thank you again.
Speaker Change: Sure Dan I'm happy to speak to that but as you know we can't speak directly to the details of their business until the deal is closed.
Speaker Change: <unk> released results. This morning, and they were very strong and you can go to their website www <unk> com to see those results of both companies had an excellent Q3, both companies have strong momentum and following closing will release, a combined website tomorrow night and that <unk>.
Speaker Change: The form of both company's Q3 results will be part of filings release Tomorrow and on the new website, which will be IR dot Primo brand stock com.
Speaker Change: Now <unk> had a very strong quarter from what I saw revenue was up four 2% volume was up one 7% EBITDA was up 11%.
Speaker Change: Year to date 28, actually really strong results for our quarter was very strong with balanced and broad based growth strengthened all water channels volume growth as David said, we had eight eight revenue growth and that was driven by 5% volume which is really good.
Speaker Change: Performance in the context of the other beverage manufacturers.
Speaker Change: We've got three 8% and price organic growth was seven four.
Speaker Change: We're really excited about the performance of water direct and exchange, which was up 8% refill, which was up seven 1% and in mountain valley doubled versus year ago, because of the distribution we're driving.
Speaker Change: So yes, okay.
Speaker Change: The last thing I'll say about that.
Speaker Change: Both have very strong results our must win priorities have been working.
Speaker Change: We'll stay focused on key metrics like service.
Speaker Change: Retention organic sales growth.
Speaker Change: During our customer touch points are great and improved net promoter scores.
Speaker Change: For Primo we've seen our Google.
Speaker Change: And trust pilot scores go up significantly over the last six months. So we know we're doing something right.
Speaker Change: <unk>.
Speaker Change: Our next question comes from Jon Andersen from William Blair. Please go ahead.
Jon Andersen: Hi, good morning, everybody congrats on the good quarter.
Speaker Change: And the pending close of the transaction.
Speaker Change: Robert you mentioned in the prepared comments that.
Speaker Change: Part of the.
Speaker Change: The benefit here.
Speaker Change: The combination will be an opportunity to.
Speaker Change: Look at expanding.
Speaker Change: New channels or high potential.
Speaker Change: Geographies.
Speaker Change: And also.
Speaker Change: Build out greater.
Speaker Change: Greater presence in functional or enhanced water areas, where you may not have as big of a presence today could you talk just a little bit more about and add some color to how youre thinking about kind of the channel and geographic opportunity.
Speaker Change: From a sales perspective, and then how you support that.
Speaker Change: With the combination of the capabilities of the two companies and then also just where you see the biggest white space.
Speaker Change: Functional or enhanced water perspective, thank you.
Speaker Change: Thanks, John.
Speaker Change: Yeah. Good question.
Speaker Change: So the combination of the business combination we will have presence in over 150000 retail outlets with bottled water.
Speaker Change: Our exchange program the big bottles that you can buy in front of the store will be present in over 26, 5000 outlets and our refill machines will be precedent over $23 5000. So that's a that's an incredible starting point for growth.
Speaker Change: With regards to value capture.
Speaker Change: There are so many.
Speaker Change: Opportunities to drive distribution and I'm, a big believer that distribution is the gift that keeps on giving so if you think about the spring brand portfolio of Blue Triton.
Speaker Change: Uh huh.
Speaker Change: Having the ability to bring those spring brands onto our trucks and distribute those alongside our purified brands like spark with some primo water is a huge opportunity in serving over $3 million.
Speaker Change: Customers strict direct to customer.
Speaker Change: Second one obviously, we have strengths in DIY with Primo Theres, a great opportunity to drive <unk> sales in that channel.
Speaker Change: We're strong with mountain Valley, natural and Theres definitely a brands.
Speaker Change: Triton has that can come there Triton has strengths in mass, where we have opportunities to distribute our mountain Valley brand.
Speaker Change: The away from home channel is going to be increasingly important think about restaurants and schools.
Speaker Change: And hospitals.
Speaker Change: And small format is a true opportunity for both businesses. So we're going to have to be very diligent and disciplined in determining the size of the prize of those opportunities and then go after them with great execution excellence operational excellence to drive.
Speaker Change: The accelerated growth and win market share.
Speaker Change: Okay.
Speaker Change: Super helpful.
Speaker Change: Could you just one follow up talk a little bit more about how you're organizing.
Speaker Change: To kind of project manage the integration activities I guess that that involves not just the identification of the synergies, which I think you've already done to some extent, but.
Speaker Change: Washington, Holdouts and ultimately <unk>.
Speaker Change: Execution side of that.
Speaker Change: Yes, just from a from an overall.
Speaker Change: Integration project management standpoint, how you are kind of organizing that internally and then how you see that kind of playing out.
Speaker Change: Going forward. Thanks.
Speaker Change: Yeah, I'll definitely speak to that John.
Speaker Change: So we're working with World class consulting companies and advisers to ensure we follow a best practice and we have put together an integration management office and emo consists of two aimco leads from both companies' dividends by 12 work streams and over 65 value capture initiatives.
Speaker Change: We've been able to identify the new executive committee will be announcing that executive committee on our website tomorrow.
Speaker Change: And we have put together a board of directors, which will be announced as well on the website tomorrow.
Speaker Change: That integration management office has gone through three stages of planning <unk> identified in the first stage at the conceptual level, where we would be able to capture.
Speaker Change: Synergies. We then worked out very specific plans and we're now at the pre execution stage to be able to hit the ground running from day, one we will be executing synergies starting this quarter.
Speaker Change: The remainder of Q4, so really.
Speaker Change: Organized through emo.
Speaker Change: Work streams and multi stage from conceptualization to execution with the help of the best consulting firms in the world.
Speaker Change: Thanks, so much.
Speaker Change: Our next question comes from Andrea Teixeira from Jpmorgan. Please go ahead.
Speaker Change: Your line.
Speaker Change: Good morning, everyone. It seems like afternoon for all of us.
Speaker Change: Yes.
Speaker Change: We think about the rebranding.
Speaker Change: Of the company to premium brands and you called out you want to be a leading branded beverage company focus on hydration function of organic and inorganic what sort of category Adjacencies that the company could be could be looking at the right to win.
Speaker Change: In extending brands and thinking of potentially take leverage to make more acquisitions as we go.
Speaker Change: And then just a clarification obviously in the midst of these transaction.
Speaker Change: Guidance for the Standalone company kind of takes a back seat, but just think about how.
Speaker Change: We should be thinking of the fourth quarter.
Speaker Change: As well as our last one that I want to ask in terms of like mountains on details about it turned out the growth what is the potential for the brand, especially in the context of a bigger distribution and where do you see the business going long term.
Speaker Change: The growth profile that you see from our brands sorry for all of this.
Speaker Change: Very good so theres three three parts of your question Andrea and thank you for your question.
Speaker Change: Start with the first part and then I'll hand, it over to David.
Speaker Change: Our.
Speaker Change: Current brand portfolio will get initially we will have to go through some brand consolidation. So we're about 25 brands in the combination we need to really understand which brands will be the priorities and then we'll transition to migrate some of those over the next couple of years.
Speaker Change: And then we will be driving distribution into white space opportunities on our existing strong $1 billion.
Speaker Change: Other brands. So that is the key source of growth to drive a very strong core business before we do anything else and we will stay focused in year one.
Speaker Change: The integration success before we get distracted with other things and shiny objects. So we will be focused on customer service will be focused on integration value capture and then revenue synergies, which will primarily be distribution gains in white space channels now as we look beyond that.
Speaker Change: Obviously, there are branded beverage opportunities that we can either grow.
Speaker Change: Ourselves or acquire as part of our capital allocation strategy, we would consider we'll always consider looking at acquisitions and inorganic growth opportunities.
Speaker Change: Where we probably wouldn't plays the carbonated soft drink segment because that is in decline.
Speaker Change: Very very occupied and.
Speaker Change: It's a busy space, but there are other segments of the markets, whether that's hydration, whether that's isotonic, whether that's energy that would be definitely be interesting for us to look at and we also think that on our existing brands, we can innovate and.
Speaker Change: Two into additional spaces, because we have the strongest brands in the water category. So that's where we are now let me pass it to David with regards to guidance.
David: Let me say one more thing about mountain Valley before I do that.
Speaker Change: The obvious one for mountain Valley is to get into the mass channel that is a very very big growth opportunity. When we say masks, we referred to big box retailers like Walmart so that would be a key priority going forward to gain distribution alright, David we'll take it from here and maybe to build for a minute on the mountain valley part within the quarter, which was part of your.
Speaker Change: Question tied to some of the guidance and financial items heading into the quarter. We believe mountain valley was going to grow about 80%. So you can see that even with our pretty accurate ability to forecast the company and its success.
Speaker Change: We still outperformed even our lofty expectations and so we continue to.
Speaker Change: Not fully be aware of what the ceiling is there and thats exciting for us and we've taken the opportunity to obviously secure more water rate to improve and increase our capacity and our ability to produce to meet that demand and we're very excited about what that will become an addition to when you pair that with Saratoga to provide.
Speaker Change: Our sales teams the opportunity to expand that both in retail on premise and other sort of.
Speaker Change: Tablecloth opportunity.
Speaker Change: With regard to the guidance. Your note. This morning actually hit on it perfectly so the transactions supersedes any ability to really communicate our own financial merits for the balance of the year.
Speaker Change: As this deal closes on Friday, and then opens on Monday with regard to our new ticker and company name.
Speaker Change: Within the revenue line Theres really no changes in the accounting architecture, but after that Youll see nuances of again things like.
Speaker Change: <unk>.
Speaker Change: Empty bottles and things that Primo used to previously capitalized will move to cost of goods.
Speaker Change: We remain incredibly confident in where we are in Q4 as well as where we would have been if we were talking today is a sovereign company updating guidance. So there should be no takeaway that we are not communicating that from any position of weakness again with both blue Triton communicated results. This morning, and ours were incredibly <unk>.
Speaker Change: With the momentum and the pace of which both companies are producing results and notably on the volume line.
Speaker Change: So again.
Speaker Change: I think we remain incredibly confident heading into year end, we will disclose an update and clarify activities with how primo would have performed as a sovereign entity with bridges back to the accounting.
Speaker Change: That we are on today, even though that will change tomorrow and that should help everyone be reassured that when we communicate full year results in February were doing so highlighting where primo organically finished with its strength as well as the blue Trident.
David: That's super helpful. David If I can squeeze one.
David: Just to be one of the reasons why perhaps there is a regulation for some of the investors who are Canadian.
David: And cannot on.
David: Our U S listed stock May explain why the stock opened now and even more down than it is now is there anything you can share with us.
David: The investors to understand like what are the puts and takes from a glib relation with military standpoint, it might be just an.
Speaker Change: And accommodation of that.
Speaker Change: Specific restrictions for some investors who cannot.
Speaker Change: You asked a question.
Speaker Change: Yes, so I won't be able to perfectly attribute everyone's own regulatory or investment policy, but we did have a very small and when I say small far less than 5%, even maybe two or three last record of Canadian explicit shareholders.
Speaker Change: As we delist they might have their own <unk>.
Speaker Change: Turning or policy that preclude them from owning either American domestic or other opportunities outside of their home country.
Speaker Change: Are unaware of why there was the volatility at the open it's clearly not related to our results nor blue triton's, nor any pending disruption because obviously we are on track to close the deal far ahead of schedule.
Speaker Change: So thats the best I can communicate today is what I know, obviously with our banking partners and equity desks will look into maybe what had happened.
Speaker Change: But to our knowledge again, we remain incredibly confident and proud of the quarter and the momentum. We have ahead of us, but it's a great question and potentially part of the disruption this morning.
Speaker Change: Thank you I'll pass it on.
Speaker Change: Congrats again.
Speaker Change: Andrew.
Speaker Change: Our next question comes from Derek Lessard from TD Cowen. Please go ahead.
Speaker Change: Yes, good morning, everybody and echo the congratulations on the quarter and the closing of the deal.
Speaker Change: I guess I'll stick to the sort of legacy <unk>, maybe you.
Speaker Change: Where are you in terms of your efficiency projects.
Speaker Change: And how much can we expect I guess for you to squeeze out whether it's from artic automatic route optimization youre, new delivery schedules and the upgrades to your production lines.
Speaker Change: Yes, absolutely so.
Speaker Change: Let's touch on that in a few different parts. So we.
Speaker Change: <unk> our fifth line.
Speaker Change: This year.
Speaker Change: And then as we look at network.
Speaker Change: We will be leveraging best practices of manufacturing network and route to market between the two companies and so what's nice about that opportunity as it has allowed us to maintain and improve efficiency ratios reduce labor and waterways. So everything that we communicated as a sovereign company.
Speaker Change: For the goal we wanted to achieve on production efficiencies.
Speaker Change: Has occurred what is nice is that when we look between ourselves and blue Triton.
Speaker Change: Both companies could be more efficient today and how they manufacture five gallon clearly blue Triton is in a tremendous position of strength with regard to the efficiencies manufacturing Knowhow and superior insights of the team that we're bringing together to help run sort of the sort of north.
Speaker Change: American manufacturer for whether it's small format or five gallon. So.
Speaker Change: With regard to the lines on Arrow Youll notice this quarter, we still drove revenue productivity per route, but we were down one unit and that was a conscious choice. We were seeing as we headed into Q3 strength and volume of which this was our third quarter.
Speaker Change: With significant volume momentum and.
Speaker Change: And if you look across the last four quarters. Each of those are sort of been north of two five or 3% with both Q1 and Q3, both five 5% volume.
Speaker Change: Achievements.
Speaker Change: We wanted to be conscious of our routes and our ability to serve both the exchange racks as well as our customers.
Speaker Change: Mediately after the quarter, we took steps to reduce route counts, which is typically the driver of <unk> not only do we have the appropriate optimize routes on the road, but we also run them with less miles per route delivery and.
Speaker Change: And so we took.
Speaker Change: <unk> choice again inside the quarter to make sure we could sustain.
Speaker Change: And fulfill the sort of peak summer demand and then take the appropriate steps heading into the back half of the year to sort of reduce those routes and rationalize that.
Speaker Change: Lastly, with regard to the business optimization program, which would have been a sovereign primo activity.
Speaker Change: Irrespective of the synergy capture we remain on track to deliver a run rate balance of $20 million.
Speaker Change: A few items, we took in the end of Q3 and activities that will take place in late Q4.
Speaker Change: That will have achieved basically.
Speaker Change: About $6 million in calendar year, which across its different.
Speaker Change: Optimization times on an annualized basis gets us to a full $20 million that we were committed to for 2025 and again that does not preclude us from achieving any of the previously communicated synergy targets. So we come into the deal close with great momentum both of making ourselves more efficient, which as you can see in our EBITDA margin for the quarter.
Speaker Change: <unk>, but as well allow us allows us to find and fulfill the synergy capture as we look to see how we can exceed our original guidance on that.
Speaker Change: Thanks for that David really good color and maybe just one last one for me and I just wanted to touch on again, just as it pertains to Primo.
Speaker Change: Your organic growth.
Speaker Change: Sorry, your customer adds.
Speaker Change: Any I guess initiatives that you would be able to highlight on the organic the strong organic growth youre getting there.
Speaker Change: Just wondering if your.
Speaker Change: Customer gains from the Costco contract largely stabilized cards that are.
Speaker Change: A meaningful driver.
Speaker Change: Yes, So let me quickly address that across a few of our channels. So in laundry growth, Yes, Costco remains.
Speaker Change: We will continue to be a great driver.
Speaker Change: <unk> club.
Speaker Change: Other web activity gains in our water direct space more importantly, we are seeing customer retention. So as we've always talked about we can bring in as many of you one on the top but they need to be the right value oriented customers that want to seek this service.
Speaker Change: With our better service to them, we're maintaining and retaining more of those customers as you can see in our customer retention rates quickly on exchange. There really is no ceiling to this business. We are incredibly pleased with it we cannot wait to add the brands on the regional spring water side from Blue Triton as well as their over 8000 locations to our current <unk>.
Speaker Change: 18000 account there and then when you get to refill clearly we have a great product that's resonating with the value oriented consumer and this high inflationary environment.
Speaker Change: Still provide them access to great purified water.
Speaker Change: At a great entry price. So we really are coming into the deal with great momentum on all of our price points all of our brands and then only can get better with regard to blue Triton, joining the family and their brands. So I feel very confident there and clearly mountain valley speaks for itself as with Saratoga in their business. So again I feel very confident that the organic side of our business is doing great.
Speaker Change: And has the continued momentum a quick item on the inorganic.
Speaker Change: Andrew had mentioned and more in Adjacencies, we continue to have the opportunity to acquire tuck ins in the water direct space, we will continue to prioritize our capital allocation toward that and Youll hear more over time, but thats, an exciting sort of ability to keep that pipeline working for us.
Speaker Change: Awesome for that and good luck on the next chapter.
Speaker Change: Thank you Derek.
Speaker Change: There are no further questions at this time I'd now like to turn the call over to Robert <unk> for final closing comments.
Robert Rebroke: Well. Thank you all for attending today's call and for your continued interest in our company. The closing of the transaction will Mark an exciting new chapter as we bring together the strengths of both legacy companies to create premium brands I am pleased with the tremendous progress that we've made in shaping the future of the company our teams have.
Speaker Change: Been intensely focused on ensuring we hit the ground running post close we've been working across both organizations to identify opportunities building up some optimized structure and unlock synergies throughout the combined business. Thank you for your interest in joining us on the next step of our transformation.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines. Thank you.