Q4 2024 Primo Brands Corp Earnings Call
'twenty 'twenty four earnings call.
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John: Thank you I'll now turn the call over to John <unk>, Vice President Investor Relations.
John: Welcome to <unk> Corporation's fourth quarter 2024 earnings Conference call. All participants are currently in listen only mode.
John: Call is being webcast live on <unk> brands website at IR Dot Primo brand dot com and will be available there for playback.
John: This conference call contains forward looking statements regarding the company's future financial results and operational trends estimated synergies impacts from economic factors, our recent refinancing efforts and other matters.
John: 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 quarterly report on Form 10-Q, and other filings with the SEC.
John: The company's actual performance could differ materially from these statements and the company undertakes no duty to update these forward looking statements.
John: Sept as expressly required by applicable law.
John: Reconciliations of any non-GAAP financial measures discussed during the call with the most comparable measures in accordance with GAAP. When the data is capable of being estimated is included in the company's fourth quarter earnings announcement released earlier this morning or on the Investor Relations section of the company's website at IR <unk> <unk>.
John: <unk> Dot com.
John: 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.
Robert Rebroke: Im accompanied by Robert Rebroke, Primo brands, Chief Executive Officer, and David <unk>, Chief Financial Officer.
Robert Rebroke: Start their prepared remarks, Robert and David will discuss the Q4 and full year performance of <unk> brands as well as outlook for the full year 2025.
Speaker Change: With that I will now turn the call over to Robert.
Speaker Change: Thank you John and good morning, everyone.
Speaker Change: Before I begin I want to take the moment to extend my sympathies to those impacted by the recent wildfires in California, and the loss of life and property.
Speaker Change: First and foremost our thoughts are with those still this place and we hope for a speedy recovery for those affected.
Speaker Change: Once again, the efforts of our associates to deliver high quality drinking water to people in these hard hit areas was admirable, but I want to personally thank them.
Speaker Change: We are working with local relief organizations to supply water and have so far been able to provide hundreds of thousands of bottles of water to those across the affected area.
Speaker Change: Our beverage solutions directly and through retail locations serve a critical need during natural disasters like these wildfires as well as floods and hurricanes the resilience of the communities and associates in these affected communities is remarkable and we are.
Speaker Change: Proud to support them.
Speaker Change: Although we have production distribution and customers in the greater la area.
Speaker Change: Activities were largely unaffected and any financial impact was not significant.
Speaker Change: Before I cover our fourth quarter results I would first like to quickly reflect on the past year.
A year ago Primo water was updating investors on the sale of a significant portion of our international businesses.
Speaker Change: This was a catalyst to drive improved free cash flow and enhance the margin profile of the business.
Speaker Change: It also helped set the stage to renew the focus on the North American markets, where we identified a significant runway for growth at.
Speaker Change: At the same time Blue Triton brands had completed its third year of strong performance. After the turnaround of the former Nestle waters business led by one of our capital and Metropolis and company.
Speaker Change: They are investments in improving <unk> assets talents and distribution systems continued to drive strong financial results.
Speaker Change: Then in June the legacy organizations entered an agreement to combine the two companies.
Speaker Change: Both legacy companies entered the transaction from a position of strength and their respective boards recognize the substantial growth and synergy opportunities with the vision to combine these two great companies.
Speaker Change: We are excited to have completed the transaction on November eight and moved quickly to start integrating these two great companies.
Speaker Change: A tremendous thank you to all parties involved during this evolving journey, including our customers Associates directors advisors and stockholders.
Speaker Change: Now let me take you through the details of Primo Brands' fourth quarter. The GAAP results of our inaugural reporting period are complex because Q4 and full year 2024 results include the legacy <unk> business for the entire reporting period as well as the legacy Primo water results.
Speaker Change: Only from the closing date November eight through December 31.
Speaker Change: All prior year GAAP comparisons are made against the Standalone legacy financial results of <unk>.
Speaker Change: To assist with comparable go forward results. In addition to this GAAP requirements. We have included the combined results in our supplemental earnings deck.
Speaker Change: This helps demonstrate the standalone results of both legacy companies as well as the combined results for the full period and compare them to the prior year on an apples to apples basis.
Speaker Change: I will touch briefly on the high level financial results on a comparable combined basis and I will let David walk you through the more granular financial details of the quarter and full year in his remarks later.
Speaker Change: A review of the combined results will demonstrate that both companies finished the year with exceptional strength.
Speaker Change: The fourth quarter was marked by robust balanced growth across the portfolio and highlighted the resilience of our team and our focus on customer service during the beginning of our integration process.
Speaker Change: For the full year 2024, combined net sales were $6 eight 1 billion, an increase of five 4% consisting of volume growth of three 4% and pricing or mix of 2% combined net sales gains were driven by organic growth of 5%.
Speaker Change: And inorganic growth of 0.4%.
Speaker Change: Demonstrating the strength across our beverage solutions offerings, and the health of our consumer and category.
Speaker Change: I am pleased that we continued to grow combined net sales with both volume and price.
Speaker Change: Combined adjusted EBITDA for the full year 2024 was 135 3 billion up 19, 5% versus the prior year and increased faster than the rate of combined net sales growth.
Speaker Change: The resulting combined adjusted EBITDA margin was 19, 9%, a 240 basis points growth increase over last year's margin of 17, 5%.
Speaker Change: Our performance is a direct reflection of the multiple <unk> wins in our business.
Speaker Change: <unk> demand remained strong resilience.
Speaker Change: Our beverage offerings are well diversified across price points and balanced between various channels like retail residential commercial and away from home.
Speaker Change: We are seeing positive consumer trends, including healthier lifestyle choices, which align with our health and wellness attributes of our products.
Speaker Change: We believe the increasing concern of water contaminants and tap water is driving consumers to seek high quality beverage solutions.
Speaker Change: Consumers are increasingly aware of the need for a backup supply of emergency drinking water.
Speaker Change: Our diversified product offerings allows us to fulfill the consumer's desire for high quality water from our product portfolio with.
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 intend to apply best practices from both legacy companies and use machine learning and analytics to optimize our demand forecast production planning network and route design.
Speaker Change: All while enhancing the customer experience.
Speaker Change: The results are a direct reflection of the efforts of our associates and their commitments to our customers in our must win priorities.
Speaker Change: As part of the evolution of our company and the completion of the transaction, we have expanded and built upon our must win priorities as we enter 2025, let.
Speaker Change: Let me take a moment and discuss the specific details of each of our must win priorities for Primo grants.
Speaker Change: First must win is brand leadership to empower our brands to be the number one choice of consumers by setting the standard for quality innovation and customer experience in the markets Primo brands has an iconic portfolio of brands, including two established billion dollar brands purely.
Speaker Change: And Poland spring and is well positioned to be the leading player in the U S bottled water category.
Speaker Change: We also have leading regional brands, such as Arrowhead Deer Park Ice Mountain, Osaka, and Zephyr Hills, and other purified brands like Primo water and sparkling.
Speaker Change: They're kind of data indicates that premium brands was the largest branded player to grow market share in 2024.
Speaker Change: These results are testament to the strength of our branded portfolio.
Speaker Change: This move is reflective of an ongoing consumer trend away from sugary soft drinks towards high quality drinking water.
We believe the bifurcation in performance between Primo brands, and others, well positioned premium brands as a must own assets within investors consumer staples portfolios.
Speaker Change: The evolution of our premium brands continues to be remarkable.
Speaker Change: Last month, you may have noticed the beautiful blue bottles of Saratoga spring and sparkling water across multiple high profile events like.
Speaker Change: Like the presidential inauguration, the Golden globes or at meetings of heads of state for attendees were enjoying the superior quality and taste.
Speaker Change: In addition, <unk>.
Speaker Change: December Pantone officially introduced the color there.
Speaker Change: Saratoga signature Blue Intuit's pallets memorializing, the beautiful iconic blue of the Saratoga bottle into their expertly curated collection.
Speaker Change: Mountain Valley is also increasing in popularity with celebrities musicians Influencers and professional athletes being seen consuming the brand from its iconic green glass bottles and its more recently launched aluminum bottles.
Speaker Change: Our premium water offerings are in the early stages of expansion as we are preparing for a shift into mass merchandisers.
My background in brand building will be particularly useful as we evolve into a modern branded portfolio and with a relentless focus on distribution household penetration and channel opportunities.
Speaker Change: Meanwhile, pure life is reaching families nationwide through a partnership with Disney's mufasa encouraging parents to keep their kids hydrated.
Speaker Change: The second must win is net organic growth to grow our customer and consumer base in store in home and through Omnichannel with offerings that allow consumers to hydrate whenever wherever and however, they want we.
Speaker Change: We seek to grow and retain Derek delivery exchange and refill customers and locations.
Speaker Change: The strength of our combined organic net sales growth was on full display last year with growth of 5% versus prior year.
Speaker Change: In addition, four of our six regional spring water brands launched in aluminum bottle offering in 2024 to meet our consumers preferred formats for every usage occasion.
Speaker Change: As announced last year for Mountain Valley, we are still on track to launch a P. T six pack offering with Walmart next quarter.
Speaker Change: As well as offering aluminum and glass formats in certain geographies to.
Speaker Change: To complement our smaller format offerings. We are also offering a refreshed lineup of five gallon dispensers and accessories to Walmart shoppers that meets the consumer needs two upgrades like programmable auto fill settings, and a dispensing cavity that easily accommodates larger vessels like cookie.
Speaker Change: Tens or Stanley Cups.
The third must win is to deliver a superior customer service experience.
Speaker Change: Aim to delight, our customers by delivering a consistent experience at every product service and support touch points that leaves a lasting positive impacts.
Speaker Change: By measuring our service impacts with metrics like net promoter score trusted pilots, Google ratings and App ratings, we have consistent feedback on our performance and can quickly course, correct if necessary.
Speaker Change: We also relaunched our water dot com sites at the end of last year to create a seamless experience for customers with enhanced user experience design and streamlined navigation features.
Speaker Change: Our digital presence continues to evolve with integrated and streamlined enhancements on our websites and the primo water and ready refresh apps.
As of January our Costco customers that sign up for our direct delivery service now have access to an expanded brand portfolio.
Speaker Change: Gaining the ability to select a spring water five gallon offering from one of our regional spring water brands.
Speaker Change: In addition to our previously offered purified five gallon primo water offering.
Speaker Change: The fourth must win is operational excellence, where we enhance our ability to consistently deliver value to customers and performance through efficiency improvements strategic sourcing and improved returns on invested capital.
Speaker Change: Our teams have improved our demand forecast tools methodologies and outcomes, resulting in improved efficiencies and lower costs per units.
Speaker Change: We remain focused on optimizing our structure and setting ourselves up for future success, enabling the immediate implementation of product availability across each legacy companies branch network.
Speaker Change: In January we began manufacturing five gallon bottles in house for our premium water and sparkling brands deploying over 50000, new bottles into the production network leveraging our vertically integrated supply chain to ensure product supply at a lower cost per units.
Speaker Change: The fifth must win is to be the first choice for stakeholders.
Speaker Change: Earned our position as a first choice organization with our associates communities retailers vendors and investors through a relentless commitment to a quality associate experience sustainability community engagement and stakeholder partnership.
Speaker Change: We embrace our partnerships with top tier retailers and other prominent grocery chains throughout North America.
Speaker Change: These relationships present, an opportunity through joint business planning to increase our presence grow market share as well as increased household penetration and resulting volume all creating meaningful connectivity across our portfolio.
Speaker Change: Sustaining and enriching these partnerships means we can win for the long haul.
Speaker Change: Simply said, if our retail partners when we win.
Speaker Change: Our resilient business model has a differentiated combination of associates.
Speaker Change: <unk> and resources that are capable of delivering results that benefit all our stakeholders, including associates suppliers customers and current and potential stockholders.
Speaker Change: The safety of our associates and communities is always our priority. We are committed to equipping our associates with the best tools and support to ensure their safety and.
Speaker Change: In support of this we are currently piloting an advanced blind spot detection and hazard monitoring system in our delivery vehicles.
At Primo brands, we're committed to making healthy hydration more sustainable responsible and accessible for everyone everywhere through four pillars.
Speaker Change: Actively managing our water resources and helping conserve our over 28000 acres of land.
Speaker Change: Circular packaging greenhouse gas reduction and community support and disaster relief as evidenced recently during the wildfires in California.
Speaker Change: We believe all aspects of our business are aligning for flawless integration execution.
Speaker Change: We build the foundation for long term growth by unifying the people processes policies and platforms to maximize timely cost synergy capture as well as to capture revenue synergies.
Speaker Change: Together, we will go to market as one of the largest branded beverage companies in North America.
Speaker Change: Our plan to deliver growth and profitability is clear with a good balance of volume and pricing.
Speaker Change: We believe the execution and delivery of these must wins will enable achievement of our 2025 financial guidance, which includes the capture of $200 million of cost synergy opportunities.
Speaker Change: Total cost synergy opportunities are now estimated to be $300 million by year end 2026.
Speaker Change: This is a $100 million higher.
Speaker Change: And one year sooner than previous forecast provided at the time of the deal announcements.
Speaker Change: Before I turn the call over to David I would like to once again, thank all of our premium brands associates for their support and contribution to the excellent performance of the business.
Speaker Change: Their dedication reflects the culture. We are building that are centered on customer service a relentless focus on distribution.
Speaker Change: 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 results for 2024 and guidance for 2025, let me first thank the amazing teams across Primo brand that helped us navigate a transformative 2024.
David: From the divestiture of Primo waters European business to the diligence and successful merger completion of Primo brand teams have worked tirelessly to enhance return for stockholders and serve our customers.
David: Today's results represent the fourth quarter and full year 2024 results for Primo brands.
David: As Blue Triton brand was the accounting acquirer of record the company's financial results.
David: Few different iterations presented and discussed in today's earnings call.
David: All references to GAAP results reflect blue Triton financial results plus. The addition of legacy Primo water beginning on November eight 2024, the closing date of the merger.
David: There are other references to combined result, which include the combination of our legacy Primo water with Blue Triton for the full calendar year. In addition to other conforming accounting adjustments to follow our go forward accounting policies.
David: This is to assist with the true outline of the merged financials in the Primo brand.
David: Lastly, during the fourth quarter legacy Blue Triton made the important decision to sell real estate affiliated with its eastern Canadian operations and exit the activity of this particular geography that were dilutive to the overall business.
With that decision the company received approximately $45 million when the deal closed on January 31 2025.
David: Due to the exit of these business operations, we will provide a supplemental schedule highlighting the comparable net sales and adjusted EBITDA by quarter and full year 2024, so that guidance and financial results across 2025 remain clear.
David: In total this portion of the company delivered approximately $84 million in full year, net sales and approximately $6 million and adjusted EBITDA.
David: For your convenience. We have also included a number of support schedules in the appendix section of the supplemental earnings deck located on our website at IR Dot Primo brand Dot com.
David: Turning to our fourth quarter results. The combined Primo brand included combined net sales, increasing five 5% to $1.
David: Zero $9 billion.
David: Bind adjusted EBITDA, increasing three 7% to $301 million with combined adjusted EBITDA margin of 18, 7%.
David: Within the combined five 5% net sales growth approximately five 1% or approximately $78 million came from organic growth activity with the balance, 0.4% or approximately $6 million coming from inorganic or acquired sources.
David: This organic activity took place within legacy Primo water's water direct business prior to the merger and is not related to the merger of Primo water and Blue Triton.
David: As a reminder, Primo brand definition of inorganic contribution include any acquired businesses that were closed less than 12 months ago.
David: After 12 months and the acquired business becomes part of normal contribution basis.
David: Separately the combined net sales increase for the quarter was driven by four 4% increase in volume and one 1% increase in price or mix.
David: Volume for premium brands is now defined as case goods equivalents, which are measured at 12 leaders.
David: The strength of the quarter was driven by strong performance across all water categories growth was driven primarily by volume and to a lesser degree price.
David: For the full year 2024 results of the combined Primo brand combined net sales increased five 4% to 6810 $1 billion.
David: Combined adjusted EBITDA increased 19, 5%, a 135 3 billion.
David: With combined adjusted EBITDA margins of 19, 9%, a 240 basis point increase versus the prior year.
David: The year over year combined net sales growth increased five 4% or $347 million with five zero percent coming from organic growth activity and 0.4% coming from inorganic or acquired sources.
David: The combined net sales growth was driven by volume of three 4% or $220 million and price mix of 2.0% or $127 million.
David: Volume improvement and a series of wins across brand offering increased points of distribution channels of trade and product mix.
David: We believe we remain a strong beneficiary of current health and wellness trends and our product price point diversity continues to deliver strong volume.
David: Now, let's shift to our balance sheet and cash flows as a reminder, primo brands combination with structurally setup to leave the pre merger capital structure in place with that capital totaling approximately $5 1 billion at the end of 2024.
David: Since the closing of the merger the company has been busy simplifying the debt capital structure, which we believe will strengthen our financial position and enhance shareholder value.
David: First we successfully repriced the $3 $1 billion term loan b from a weighted average of sofa plus $3 35 to <unk> plus 225, reducing go forward interest expense.
David: We consolidated our revolving facilities into a single unified new $750 million cash flow revolver.
David: This simplifies our financing arrangements reduces administrative overhead and provides us with greater flexibility and access to capital.
David: The new revolver provides us with approximately $633 million of available liquidity after accounting for standby letters of credit totaling approximately $117 million at the end of 2024.
David: Finally, we executed an exchange offer for the three outstanding series of our senior notes.
David: These activities demonstrate our proactive approach to capital management committed to actively managing our cost of capital and prioritization of deleveraging activities.
At the end of the fourth quarter for the combined Primo brand our net leverage ratio stood at approximately three three times combined adjusted EBITDA.
David: Our liquidity remains strong with approximately $614 million of cash on the balance sheet.
David: $621 million when considering the cash within our discontinued operations.
David: $633 million of cash flow availability as mentioned earlier, bringing total liquidity to $1 2 billion.
David: Additional non operational liquidity is forthcoming in the first half of 2025 as the final legacy International businesses are set to close in coming months.
David: We reached a definitive agreement for the sale of our Israel business, which is going through closing procedures and are close to finalizing the sale of our UK business proceeds will further strengthen our overall cash and liquidity position.
David: As mentioned earlier, we also sold the real estate affiliated with our exited eastern Canadian operations for approximately $45 million just last month.
David: These proceeds will be reflected in our cash balance when we report first quarter earnings in May.
David: Moving to cash generated from the business Primo brands on our combined full year basis generated $756 $2 million of cash flow from operations and invested $324 6 million in capital expenditures.
David: <unk> and free cash flow before adjustments of $431 6 million.
David: After accounting for additional items unrelated to or to our ordinary operations. Our combined adjusted free cash flow totaled $644 $9 million in 2024.
David: A key metric we track closely as our conversion of adjusted EBITDA to adjusted free cash flow.
David: This year, our conversion ratio was 47, 7% compared to 26, 1% in the prior year, representing $349 2 million of combined adjusted free cash flow growth.
David: This improvement was driven by business performance lower levels of Capex investments as well as improved working capital efficiencies driving a one time benefit to cash collection.
David: Our strong combined adjusted free cash flow results highlighted our focus on maximizing the cash generated from our earnings.
David: Moving on to 2025 full year guidance.
David: Going forward Primo brand.
David: And to continue providing annual full year guidance, while also maintaining our disclosures each quarter across organic and inorganic contribution to net sales as well as volume and price or mix outcome and finally select sales channel disclosures as mentioned earlier with the exit of.
David: The eastern Canadian operations at the end of 2024.
David: Our 2025 guidance will exclude these results in order to provide a comparable financial baseline for 2024 to assist with year over year comparison.
David: For full year 2025, we anticipate comparable organic net sales growth of between three and 5% with net sales, reaching $7 billion at the midpoint.
David: We anticipate the 4% net sales midpoint growth to be balanced between volume and price or mix.
While water consumption across our offerings as a year round activity legacy Primo water and Blue Triton had similar net sales pacing across the year.
David: With first and second half annual contribution essentially 50 50.
David: Additionally, the middle two quarters remain the peak consumption month with about 53% of annual net sales.
David: We expect full year 2025 comparable adjusted EBITDA to be between $1 6 billion and $1 $62 8 billion with an implied adjusted EBITDA margin of approximately 23, 1% at the midpoint.
David: Our adjusted EBITDA guidance includes the capture of approximately $200 million cost synergy opportunity.
David: With more time and focus on our integration activities. We are pleased to announce that our previously estimated 200 million cost synergy opportunity is expected to be captured within 2025.
David: And we are raising our anticipated total synergy capture to approximately $300 million.
David: We believe the total estimated $300 million cost synergy opportunity will be captured by year end 2026, providing the run rate benefit of our integration activities in 2027.
David: We are decreasing our estimate of anticipated costs necessary to achieve these synergies to approximately $100 million.
David: This figure was previously $115 million at the time of our merger announcement.
David: One time costs associated with the achievement of our synergy opportunities include things like facility closures decommissioning or early lease buyout costs within our production and branch network as well as severance and other vendor and contract break fees to access savings. These.
David: These onetime costs exclude any real estate proceeds that may occur as our network consolidate.
David: The most notable being the sale of our eastern Canadian real estate for approximately $45 million that occurred recently in January.
David: Moving on to capital expenditures, we are forecasting a run rate growth and maintenance capex budget of approximately 4% of net sales were.
David: We are revising the annual capital spend profile to a more efficient 4% of net sales from the previous.
David: 4% to 5% communicated at the time of the merger.
We believe we are in a good position with our asset base once we execute our base capex alongside some integration related capex that will total approximately $250 million in onetime spend across 2025 and 2026.
David: Integration Capex is expected to be approximately $200 million in 2025 and $50 million in 2026.
David: Due to the strength at Blue Triton across our enterprise reporting platform production and vertically integrated large format bottle production, we are able to integrate these aspects of legacy Primo water business into the asset base.
David: Significant integration and volume shifts of the business into a single network and operating system will require some spend in key categories.
These include onetime integration capex within it.
David: To assist the transition of Primo water ERP into the legacy Blue Triton system water production and capacity expansion geographic location of our equipment additional large format blow molding equipment as well as other fleet and cooler asset standardization.
David: We believe this will also allow future year growth to efficiently move through our vertically integrated and scaled production and distribution system.
David: Combining these factors along with our core health and cash generation capacity of our business model. We are forecasting adjusted free cash flow of between $790 million and $810 million for 2025.
David: This forecast assumes adding back acquisition and integration costs in year integration only capex as well as.
David: Benefit of after tax in your synergy capture.
David: Yesterday, our board of directors authorized a quarterly dividend of <unk> 10 per common share, which represents an 11% increase over last year's quarterly dividend rate.
David: No shares were repurchased in the latest quarter.
David: In closing, we believe our financial profile, including robust cash generation strong liquidity availability and an improving net debt profile along with a compelling long term growth outlook are creating a solid foundation for the future success of premium brands.
Robert Rebroke: We look forward to discussing this and other items at our upcoming Investor Day next week with that I will turn the call back over to Robert for any final thoughts.
Robert Rebroke: Thanks, David we will share more detailed and fulsome information at our upcoming Investor Day next Thursday February 27 at one eastern standard time.
Robert Rebroke: The event will be webcast live on our website at IR Dot Primo brands Dot com.
Robert Rebroke: A replay will be available after the event at the same time for your convenience.
Robert Rebroke: Specific topics expected to be covered at the upcoming Investor day include.
Robert Rebroke: Primo brand positioning as the leading branded beverage company.
Robert Rebroke: Our comprehensive portfolio designed to serve all usage occasions.
Robert Rebroke: A deeper look into our advantaged route to markets.
Robert Rebroke: A review of our significant synergy opportunities.
Robert Rebroke: We will talk about.
Robert Rebroke: Our exciting growth story.
Robert Rebroke: And powerful financial profile with attractive algorithm.
Robert Rebroke: Followed by a question and answer session.
Robert Rebroke: Looking ahead, we're focused on capitalizing on the opportunities presented by our business combination and driving growth across our portfolio.
Robert Rebroke: I am confidence in our ability to deliver value for our stockholders and remain excited about the future of Primo brands Corporation.
Speaker Change: I intend for us to move decisively with speed agility and a focus on results, while maintaining high levels of customer service with that I will turn the call back to John to take us through 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 operator. Please open the line for questions.
Speaker Change: Thank you. Your first question comes from Nik Modi with RBC capital markets. Please go ahead.
Nik Modi: Yes, thanks, good morning, everyone.
Nik Modi: I guess, just given the exit rate and the strength of the business.
Nik Modi: Just wanted to get some <unk>.
Nik Modi: Qualifiers around the 3% to 5% guidance.
Nik Modi: For 2025 being a lot of questions around that I mean is there something youre seeing in the business that would suggest a slowdown or is this just hey, let's put out some targets given the current environment that are very achievable and maybe beatable, but any context, you can give us around that would be helpful. And then just wanted to just get some clarity on the.
Nik Modi: Upsize to the synergy target and kind of what was driving that that would be helpful. Thank you.
Robert Rebroke: Yeah, Hi, Nick Great too great to hear you.
Nik Modi: Well be.
Nik Modi: Before I talk about the 3% to 5% let me just quickly mention that we had a really strong finish to 2004.
Nik Modi: It was based on the strength of our brands our market share gains in our <unk>.
Nik Modi: Outstanding customer service with our World class team.
Nik Modi: And Youll look looking at the rest of the markets our results and our momentum compare favorably within the liquid refreshment beverage category versus the other players that are losing market share.
Nik Modi: And water is one of two categories that are gaining share within beverages and we've.
Nik Modi: We've shown volume momentum on large format. So the five gallon business as well as our market share in retail is increasing.
Nik Modi: Now as you talk about 25 to your question.
Nik Modi: How to qualify to 3% to 5% what.
Nik Modi: Here's what I would say that our tail wins are very strong.
Nik Modi: In 25 heading into the year.
Nik Modi: There's health and wellness.
Nik Modi: Awareness concerns around aging water infrastructure, and an increasing consumer demand for healthier beverages. So we are off to a positive start in 'twenty five with very strong consumer demand for healthy hydration.
Nik Modi: Our integration planning is on track as well and we do plan to grow volume and capture synergies. We do we do plan to leverage scale and expand points of distribution. So we are well positioned for topline growth and there is a good balance of volume and price mix contributions.
Nik Modi: What we're communicating and guiding on today is three three to five.
Nik Modi: Operable net sales growth, which is a midpoint of $7 billion and that is balanced between volume and price mix.
So we will continue to drive growth will leverage the health conscious shift in consumer trends will leverage our scale, our vertically integrated network all the way from the source of the water to shipping the water.
Nik Modi: We have a great portfolio of iconic brands and very strong retailer relationships. So net what I would say is the guidance is three to five and we intend to grow accretively.
Nik Modi: Yeah.
Speaker Change: Thanks, Nick Great and then and then on just the synergy question Robert Yes. So on the on the synergy let me pass it on to David Mann, we found opportunities in several areas, but I'll, let David talk to the details yeah. Thanks, Nick So I think the true benefit here as we went from an announcement in June.
Nik Modi: June.
Speaker Change: Continued progress into the close.
And thankfully because we were able to close in 'twenty four no team on either side of the legacy businesses had to stand down.
Speaker Change: And with that we were able to find additional opportunities as we started to reengineer our route network.
Speaker Change: And look through additional opportunities in the depot and production arenas.
Speaker Change: And Thats really the bigger bucket that was initial value and the 200 and then that's now allowed that to sort of be pulled forward. If you will into 2025 as we've had more time to sequence and engineer those activities.
Speaker Change: Additionally, as you recall legacy Primo water had had and built an extensive private fleet network.
Speaker Change: Where we were unsure if that could have been used with all of the distribution points or through the product volume and we've been able to find ways to optimize that and reduce and replace high cost and creates shorter leg movements between the business. So.
Speaker Change: So again, all in we feel very secure and confident in that delivery that's the larger contributions.
Speaker Change: Contributions to the upside and again in areas like procurement.
Speaker Change: That was complementary to those data points as that team really couldnt get into the sensitive data until close. So again, we feel very excited about the ability to raise that both.
Speaker Change: The size of it and the speed of capture.
Speaker Change: Super helpful. Thanks, guys.
Nick: Thanks, Nick.
Speaker Change: Your next question comes from Daniel Moore with CJS Securities. Please go ahead.
Nick: Yes.
Nick: And thanks for taking my questions again.
Nick: In terms of offensive or revenue synergies, obviously, a big part of the rationale for the combination what can you tell us about what you're seeing regarding those opportunities now that you've had the businesses under one roof for about three.
Nick: Three months is that something you might look to quantify either at your upcoming investor day or at some point down the line.
Nick: Yes.
Dan: Dan Great Great question, we have.
Dan: A lot of time on revenue synergies in the past few months.
Dan: And we had initial uptake on those and we continue to believe that there are a lot of those.
Dan: Those synergies going forward specifically.
Dan: The following the first one would be the expansion of our Super premium brands Mountain Valley, and Saratoga into more channels as well foodservice mass channel the grocery channel in new formats, such as half leader shrink or or.
Speaker Change: <unk> and smaller formats are different class aluminum and PT executions. The second one is the expansion of our regional spring water brands.
Dan: Particularly.
Dan: Into our Primo distribution network as well as into channels that were currently under serving such as DIY.
Dan: Then there are a whole host of distribution opportunities, which we will pursue.
On the back of our existing retail distribution. We are currently about 200000 retail outlets on our consumer offerings.
Dan: We have about 26, 5000 exchange racks, and we have about $23 5000 refill locations. So we fully intend to further leverage that infrastructure to drive new innovation on brands like Splash Arrow had various other items that are going to be launched this year, but we.
Dan: We have we have started to quantify those opportunities we'll be sharing more.
Dan: Information around our marketing and sales programs in the Investor meeting next week will help you there and we feel very confident that that will be able to give more perspective on that.
Speaker Change: Very helpful look forward to it if I could just clarify the 800 million free cash flow adjusted free cash flow guidance.
Dan: <unk>.
Dan: Does that include the divestments and from an actual cash generating perspective.
Dan: If we take the $800 million back out the onetime cost of $2 70 that leaves over 500 million for dividends M&A debt reduction is that the right way to think about it or am I missing anything there. Thank you again.
Speaker Change: Yeah, Thanks, Tim So again.
Speaker Change: Sort of outlined for the year takes into account benefits from obviously interest savings with regard to some of the capital structure items I talked about.
Speaker Change: As well as benefit over time, but we do not have.
Speaker Change: The closed proceeds from the last two international divestitures sort of in the bank account to sort of begin earning interest. So the primary contributors to that are the after tax synergy capture of the $200 million, we've outlined plus the base EBITDA generation of the combined business.
Speaker Change: And when you think about capital priorities first and foremost whether it comes through commercial synergies.
Speaker Change: This business performance, our number one capital allocation priority will always be to help enhance and grow the top line.
Speaker Change: After that we obviously made a decision as a management team and board to increase the dividend by a penny per quarter this year or approximately 11% raise and then obviously we will continue to look at share repurchases as an opportunistic.
Speaker Change: Across the year.
Speaker Change: But at this point have not communicated around that.
Speaker Change: And again, Dan just the one last closing point all of that would be on an organic basis. So again, there are not assumed inorganic activities in the guide, but as you know the company will pursue.
Speaker Change: Tuck ins and other related activities that are irrelevant accretive and when we can factor in the timing.
Speaker Change: Understood. Thank you.
David Mann: Your next question comes from David <unk> with William Blair. Please go ahead.
David Mann: Hi, Good morning, just a question on tariffs.
David Mann: I assume some of this impact has been mitigated because of eastern Canada Eastern Canada business could you just provide some color on any potential tariff impact we should be thinking about.
David Mann: Sure. David This is David with regard to tariffs at this point.
David Mann: The only impact we have on the business.
David Mann: You recall the dispenser category has gone through tariffs multiple times in its past.
David Mann: It is currently was currently under a $2 seven out of lorem tax of which the recent.
David Mann: Activities with China increased that to $12 seven or an incremental 10.
David Mann: At this point, we have seen no disruptions in the business dispenser sell through for the full year was approximately 980000 approximately flat to 2023, we remain very optimistic based on both innovation design points of distribution expansion and then retail relationship grow.
David Mann: <unk> that we have the opportunity with from the legacy Triton relationships.
David Mann: And again, we've navigated this multiple times, we have seen no demand interruption and no supply chain interruptions at that point, the dispenser business on a wholesale revenue basis for the company is about 1% of all total net sales. So it's not an impactful area and we believe again, we can continue to mitigate navigate.
David Mann: But we remain obviously as everyone else does.
David Mann: Fully aware of the new cycle and understanding if thats a permanent tariff for more of a temporary activity.
David Mann: Great. Thank you that's helpful and then one follow up.
David Mann: You talked in the prepared remarks about the Super premium portion with Saratoga and Mountain Valley with.
David Mann: And the various partnerships and events.
David Mann: Just wanted to get a sense of how they are actually performing both brands, especially as you know.
Probably a better view of Saratoga post merger.
David Mann: Yes.
David Mann: Both both brands R. R.
David Mann: Doing extremely well.
David Mann: They are the fastest growing part of our portfolio.
Speaker Change: Saratoga Mountain Valley are looking to expand distribution in the year 2025.
Speaker Change: Most recently, we with Saratoga had a very strong presence at the Golden Globes, we launched the new color as a pantone color. The Saratoga Blue we have strong celebrities athletes endorsement for the brand.
Speaker Change: And even have appear to many of the big events that have been televised over the last couple of months. So the brand is is really gaining momentum.
Which should be.
Speaker Change: Enabled by further distribution across various channels, we talked about foodservice, we talked about.
Speaker Change: The mass channel grocery channel and we're also looking to manufacture.
Speaker Change: And multiple locations Mountain Valley, we talked a lot about last year, adding.
Speaker Change: Adding capacity sprint capacity.
Speaker Change: Glass bottling capacity in launching our single serve aluminum and we're seeing very strong demand both for retail and on premise.
Speaker Change: And it's also available for our direct customers. So that's actually a bigger brand than Saratoga, but both brands are doing well in expansion plans are coming.
David Mann: Now I'll pass to David for some further financials on the business yes.
Yes, so David we plan on releasing our K next week. Obviously this has some noise in the quarter because the legacy Primo water business joined on a GAAP basis as of November eight, but when you step back and look at net sales disaggregation across our water mix the premium category of what you are asking.
Speaker Change: And how Robert was talking through the data points regarding mountain Valley in Saratoga, If you put that together on a comparable basis.
Speaker Change: The premium water space grew about 47% on a full year 2024 against the full year 2023, and again that will be one of our primary.
Speaker Change: Sales disclosure channels, where we look across the purified premium regional spring and other activities in the business. So no step back whatsoever in this environment, both the health and wellness trend the category growth and the points of distribution expansion as Robert and the team are working toward its a great bright spot in the portfolio.
Speaker Change: So and part of the brand strength that we talk about when we when we brought these two companies together.
Speaker Change: Great. Thank you that's all very helpful. I appreciate it I'll pass it along.
Speaker Change: Your next question comes from Andrew <unk> with BMO. Please go ahead.
Andrew: Hey, good morning, Thanks for taking the questions.
Speaker Change: I appreciate obviously that synergies are going to be a big margin driver in 2025 and beyond but I'm curious how to think about the base margins for the business ex the synergies.
Speaker Change: Obviously in 2040, <unk> had very nice margin expansion in the guidance, though implies kind of flattish based margins I know you have volume growth and some mix opportunities. So I'm wondering if there are offsets if that's maybe a kind of a conservative starting point just how we should think about that and then my follow up is just on the synergies you gave.
Speaker Change: Some nice context to the.
Speaker Change: To the top line cadence I'm curious if you could give some some synergy cadence for 25 as well thanks.
David Mann: Sure Andrew David here. So your question.
Speaker Change: On the base EBITDA margins.
Speaker Change: On an ex eastern Canadian business side would have been approximately two zero percent, where we would be walking sort of the base pre synergy up about 20 basis points.
Speaker Change: Really why that is is you have two companies essentially operating in silos until the synergies start to compress and start to bring the business activities together.
Speaker Change: So the real basis point expansion is going to come from the synergies in 'twenty. Five thereafter, however, as volume continues to move through the system either through the cost of goods side or through the operating expenses, that's where you'll start to see after 25 more authentic.
Speaker Change: Margin expansion, either gross or at the EBITDA level. So again, it's not that there's anything in either part of the legacy business Thats, a challenge or a headwind, we feel and remain incredibly confident and excited about the layout of 25 guidance. It's you need to start to actually bring the networks together.
Speaker Change: And that volume go through the reduced facility and branch setup and then that really starts to sort of released the velocity. If you will of the margin profile.
Thank you. Your next question comes from Andrea Teixeira with Jpmorgan. Please go ahead.
Speaker Change: Drew Levine on for Andrea and thanks for taking our questions. So David I think you referenced a bit on.
Speaker Change: The premium retail growth.
Speaker Change: And hopefully get some more disclosure in the K.
Speaker Change: And going forward, but.
Speaker Change: If you could comment on the fourth quarter, the five 5% combined revenue growth.
Speaker Change: Any more clarity on how retail and <unk> performed within the quarter and then on the 3% to 5% outlook I appreciate the balances.
Speaker Change: Volume and price mix, but any more color on how youre thinking about growth by business line would be helpful.
Speaker Change: Hey, drew I'll step in for a second this Robert Thanks for the question before we talk a bit more about the quarter four results and how that was built.
Speaker Change: I wanted to make the comment that we are really looking at the businesses. One go to market system now.
Speaker Change: We have as you know.
Speaker Change: We have one network coast to coast network vertically integrated that serves both commercial and residential customers as well as our retail customers and foodservice customers as well as small formats. So the strength of this unique go to market system is that unique distribution.
Speaker Change: Model that we can fully leverage gives us scale and allows us to grow accretively as one end to end business model, but I'll pass it to David to talk about Q4.
David Mann: Yes drew again.
David Mann: We came through the quarter with strong volume with both volume and organic being the primary contributors to the growth algorithm, where we're incredibly excited when you move into 'twenty five guidance I'll talk about both the top as well as the synergy capture and this will sort of.
David Mann: Combined with a little bit of what Andrew was asking in that prior question. So within the 3% to 5% organic net sales growth were starting with a balance of approximately 50 50 on price mix and volume.
David Mann: And really where that looks as how the businesses are exiting 2024, and how we believe the mix of products across both what they are is a watertight again premium regional spring water purified or other as well as how they are distributed whether it's directly distributed or through various channels of trade.
David Mann: We remain very confident and excited about how that volume and mix.
David Mann: If price is sort of sort of articulated across the guide profile. When you look at the synergy capture and timing, there, which was kind of a little bit more back to Andrew's question. Obviously is 25 began we beginning finalizing details around the synergy capture Q.
David Mann: Q1 is a little bit muted in that capture and then really from Q2 through Q4, it ramped up to a nice run rate. So when you think about the $100 million and capture in 2026, approximately 50% of it is a flop or a rollover effect of 2025 synergy value and then $50 million.
David Mann: <unk>, new synergy capture that begins pretty much at the beginning of the year of 26. So when you think about those factors that allows the network to consolidate it addresses Andrew's question around basis point expansion, that's really captured through the synergy lift and then when you get the K and you hear from US next week, we'll start to talk and really address.
David Mann: A lot of the disclosures around how we go to market. So take for example that Walmart released earnings. This morning, Walmart's, a great contributor to our business. Our company is arriving at Walmart, we have an amazing partnership with Walmart.
David Mann: So again when you think of how the mass channel has brought in higher income household.
David Mann: Three strong distribution of our companywide portfolio. That's why we really look at going to market as a single.
David Mann: Single segment, but it is traded across different retail channels differ product pack sizes, and others, but again, we remain very confident in where and how 25 has been outlined.
Speaker Change: Okay. Thanks for that perspective.
David Mann: And then just.
David Mann: And I guess related to the synergies and maybe.
David Mann: Some perspective on for months.
David Mann: Uncovered incremental $100 million.
David Mann: But thinking about it as time goes on.
David Mann: Can you just sort of more low hanging fruit.
David Mann: There are opportunities and conditions more.
David Mann: Through the fine tooth comb certain how youre thinking about.
David Mann: Potential opportunity beyond $300 million, if that's if that's possible and then how are you.
David Mann: You are planning to update investors on synergy capture as you're going to update sort of quarterly or on an annual basis any perspective, there would be helpful.
Speaker Change: Yes drew.
David Mann: The.
David Mann: The current.
David Mann: Guidance, obviously is $100 million above what we were previously guiding.
David Mann: At the merger, we identified $200 million, we now are telling the market that we will deliver all of that in year, one and increment that with another $100 million in year. Two therefore accelerating the total program to a two year program.
David Mann: We're looking at.
David Mann: The operations, we're looking at procurement.
David Mann: We're looking at it.
David Mann: Enterprise software or call Center is a big driver of savings in SG&A is the fifth bucket.
David Mann: Obviously, David and I will continue to look at with the with the transformation office.
David Mann: Managing our cost and creating a lean and very efficient company, where we.
David Mann: Leverage the scale of the business as well as our go to market our unique market to market system.
David Mann: At this time, we want to continue to give guidance at 300, and if theres any future updates, we'll keep you informed.
Speaker Change: Thank you. Your next question comes from Derek Lessard TD Cowen. Please go ahead.
Derek Lessard: Yes, good morning, everybody and congrats on getting over the finish line.
Derek Lessard: Just maybe wanted to touch again, probably last question on the <unk>.
Derek Lessard: Top line guide I'm curious how you how we should be thinking about and maybe you touched on it in your opening remarks, but around M&A, whether it's on the retail branded side or even within the VA <unk> distribution business.
Derek Lessard: Yeah Derek.
Derek Lessard: On the <unk> business.
Derek Lessard: Commercial residential we will continue to look at tuck.
Derek Lessard: Tuck ins as we have in the past and we will going forward. So there is no difference at all.
Derek Lessard: In and identifying the right businesses to acquire and then tucking them into our business with regards to retail brands consumer brands. Our year, one focus is to execute the merger and deliver synergies.
Derek Lessard: Beyond that we will have to evaluate opportunities as they come our way.
David Mann: And maybe I'll just pass it on to David to talk a bit about our capital allocation strategy Derek.
David Mann: Derek the clarifying point there is always the company always provides an organic net sales growth.
David Mann: So that we can take the appropriate time to look at tuck in acquisitions in that regard and make sure that they fit our system they fit within the right timing in quarter that we feel is important for the business to not only digest the synergy capture but also onboard potentially a new branch or new region, a new brand.
David Mann: Convert the brand et cetera.
David Mann: Again with within capital allocation, our number one priority will be to invest behind the top line piece of the business.
David Mann: We will experience natural deleveraging as the EBITDA grows we obviously allocated additional funds to increase the dividend as announced today and remain opportunistic with regard to our share repurchase.
Speaker Change: Yes, thanks for that and to be clear so that three to five years. It doesn't doesn't include M&A.
Speaker Change: Correct, It will not and we will not stop looking for them. It's a question of time when what size.
Speaker Change: But obviously, we will update and you'd see it in the statement of cash flows.
Speaker Change: Awesome, Thanks, and maybe just one last one on the route after on route optimization, just curious there how much overlap do you think you could eliminate.
Speaker Change: Over time and any any color on.
Speaker Change: I guess additional efficiencies there.
Speaker Change: Yes, so again from a legacy premium standpoint.
Speaker Change: You were covering analysts and others might be familiar we would've typically communicated activity and data around that obviously legacy Primo joining the blue trading system with on a GAAP basis creates a little bit of noise. There. It is the top priority. The large synergy capture we have and one of the reasons, we were able to elevate that.
Speaker Change: Dollar value today as I mentioned earlier was just getting into more of the route engineering more of the branch consolidation both cultures wake up every day with our productivity mindset and an efficiency mindset and we will begin to.
Speaker Change: We released more data across Q1, which is the full quarter of our control from a management perspective.
Speaker Change: Again, we will begin communicating further on those key kpis that really drive efficiencies, but just just know top of mind for for both sets of cultures and teams as they come together where unit productivity is the core of taking the costs out of the business. It's running less routes is putting more bottles and velocity through the production system.
Speaker Change: And then between brands and Interbranch transfer as I mentioned, we were able to extract benefit from our private fleet investments. These are all areas, where again productivity is top of mind.
Speaker Change: Okay. Thanks for that and look forward to seeing you guys next week.
Speaker Change: Thanks, Eric.
Steve Powers: And your next question comes from Steve Powers with Deutsche Bank. Please go ahead.
Steve Powers: Hey, guys. Good morning, Thank you.
Steve Powers: A question.
Speaker Change: On I guess, the service levels and service quality I guess since you've.
Steve Powers: We've got a better handle on.
Steve Powers: Both legacy operations can you give any perspective on how service level.
Steve Powers: Matrix service quality metrics benchmark legacy Primo versus legacy Triton across comparable businesses.
Steve Powers: And do you see opportunities to leverage best practices.
Steve Powers: Across legacy businesses to the.
Steve Powers: The benefit the business going forward in ways that may not show up directly in.
Steve Powers: In revenue our synergy numbers in the near term.
Steve Powers: Yeah. Thanks, Steve Thats, a very good question in fact Thats a question we spend a lot of time on us as a company.
Steve Powers: We have three.
Steve Powers: Focus areas for the organization and our culture.
Steve Powers: One of them is customer service.
Steve Powers: The second one as being a performance oriented business.
Steve Powers: And with the.
Steve Powers: Okay.
Steve Powers: With a focus on distribution, which is the third one so customer service distribution and performance with regards to customer service I would say that the ready refresh legacy business and the Primo water legacy business.
Steve Powers: We're very similar in terms of on time in full substitution.
Steve Powers: And we are absolutely looking at best practices as we integrate the two distribution models get more density in our routes get more proximity to the finished to the final customer.
Steve Powers: And so we are absolutely working through that right now we are making some of the legacy <unk> brands available in the premium water system. So think about launching Zephyr Hills, and Florida think about bone spring in the northeast.
Steve Powers: Initially in case packs and then there'll be available in the five gallon format as well and when it comes to our retail.
Steve Powers: On time in full delivery, we are really up there and best in class in the industry at the high Ninety's level.
Steve Powers: We take this very seriously and we continue to make progress as we have an even better I would say manufacturing supply network coast to coast vertically integrated.
Steve Powers: The focus on customer service also extends into our call center. So I would say ready refresh had some very.
Speaker Change: Yes, I would say very good best practices around retention that we're now implementing in primo water.
Steve Powers: And both companies have been really focused on.
Speaker Change: Reducing.
Speaker Change: Consumers trying to end the service.
Speaker Change: With a great deal of success in retention levels are going up as a result.
Speaker Change: We also invested in our internet domains like water dot com or starting to see conversion rates improving there. So we really look at customer service across commercial residential as well as retail and.
Speaker Change: It is a core component of our culture.
Speaker Change: Okay.
Speaker Change: Alright. Thank you. Thank you very much I'll leave it there.
Speaker Change: Your next week. Thank you.
Speaker Change: Ladies and gentlemen, there are no further questions at this time I would like to turn the call.
Robert Rebroke: Call back over to CEO Robert <unk>.
Speaker Change: Please go ahead alright.
Speaker Change: Thank you. Thank you for attending today's call and for your continued interest in our company I'm pleased with the tremendous progress we've made in shaping the future of premium brands, we have been working intensely across our combined organization through identify opportunities to build and optimize structure and to unlock significant.
<unk> throughout the business. Thank you for your interest thanks for joining us on the next step of our transformation.
Speaker Change: Ladies and gentlemen. This concludes today's conference call. You may now disconnect. Thank you for your participation.