Good morning, ladies and gentlemen, welcome to the Primo Water Corporation Q1 2023 results conference call. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded today, Thursday, May the 4th, 2023. I would now like to turn the conference over to Jon Kathol, Vice President of Investor Relations. Please go ahead, sir. Welcome to Primo Water Corporation's first quarter 2023 earnings conference call. All participants are currently in listen-only mode. This call will end no later than 11:00 A.M. Eastern time. The call is being webcast live on Primo Water's website at primowatercorp.com and will be available for playback there for two weeks. This conference call contains forward-looking statements, including statements concerning the company's future financial and operational performance. These statements should be considered in connection with cautionary statements and disclaimers contained in the safe harbor statements in this morning's earnings press release and the company's annual report on Form 10-K and quarterly reports on Form 10-Q and other filings with securities regulators. The company's actual performance could differ materially from these statements, and the company undertakes no duty to update these forward-looking statements except as expressly required by applicable law. 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 first quarter earnings announcement released earlier this morning or on the investor relations section of the company's website at primowatercorp.com. I am accompanied by Tom Harrington, Primo Water's Chief Executive Officer, and David Hass, Chief Financial Officer. As part of this conference call, we have included a deck online at primowatercorp.com that was designed to assist you throughout our discussion. Tom will start today's call by providing a high-level review of the first quarter and our progress on Primo Water's strategic initiatives. David will review our segment-level performance and will discuss our first quarter performance in greater detail and offer our outlook for the full year 2023 before handing the call back to Tom to provide a long-term view ahead of Q&A. One corporate housekeeping matter before we get started. As you probably saw, our 2023 annual and special meeting of shareowners was rescheduled and will be held on May 31st, 2023. The company will mail a revised proxy statement to all Primo Water shareowners in the coming days. We encourage you to read these materials carefully. Any previously submitted proxies will be discarded, and the shareowners will need to resubmit their votes. With that, I will now turn the call over to Tom. Thank you, John, good morning, everyone. Before I dive into the results for our first quarter, I'd like to take a moment to update you on the proxy contest. We are pleased to have reached a constructive resolution with Legion. We are excited to welcome to our board Derek R. Lewis and Lori Tauber Marcus, two executives with sales and marketing expertise at leading consumer products and beverage companies. We look forward to benefiting from their insight and perspective. I also want to welcome Eric Foss, who joined our board in March. Eric brings decades of experience as a chairman, CEO, and executive officer of leading route-based businesses and beverage companies with a proven track record of expanding scale, improving margins, and driving consistent earnings growth. Welcome to the team, Eric. The addition of these new directors to our board complements our board of directors' skills and experiences and are in keeping with our commitment to increase the gender and racial diversity of our board of directors. I want to thank Stephen Halperin, who we announced last year was going to retire at this annual meeting after 32 years of dedicated service. Eric Rosenfeld and Greg Monahan are also retiring from our board after 15 years of dedicated service. We will certainly miss their contributions, valued counsel, guidance, and leadership. Finally, I want to thank our team of Primo Water associates for a job very well done during the quarter, for avoiding the external distractions, and for remaining focused on our customers. Their ongoing commitment and execution positions the company for continued success in 2023 and beyond. Let's move on to the first quarter results. In Q1, we delivered normalized FX neutral revenue growth of 12%, adjusted EBITDA growth of 8%, increased adjusted EBITDA margin by 70 basis points to 17.4%, sell-through of approximately 215,000 water dispensers, and continued distributions of capital to shareholders through our dividend of approximately $13 million. For Q1 2023, excluding the impact of foreign exchange, normalized revenue increased 12%. Normalized revenue excludes the exited North America single-use bottled water retail business and our exited business in Russia. Reported revenue for the first quarter of 2022 includes $26.6 million of revenue associated with our single-use business. $2.8 million of revenue associated with our Russia business. A schedule is included in our supplemental deck. Adjusted EBITDA increased $7 million to $95 million, an increase of 8%. Excluding the impact of foreign exchange, adjusted EBITDA grew 9%. We continue to deliver increased revenue, adjusted EBITDA growth, and adjusted EBITDA margin expansion. Consolidated revenue increased 4% to $547 million. Revenue growth was driven by resilient consumer demand, increased water dispenser unit sell-through of approximately 215,000, solid revenue growth in Water Direct and Exchange of 11%, driven by both pricing and volume, strong revenue growth in Water Refill and filtration of 21%, and global Water Direct customer retention of approximately 84%, which remained consistent with last quarter. Adjusted EBITDA in the first quarter increased 8% to $95 million, supported by higher volume, increased pricing, and effective expense management. We're pleased with the adjusted EBITDA expansion in the face of continuing inflation. We successfully offset the impact of higher labor, fuel, and freight expense of approximately $15 million in the quarter and expanded the margin percentage to 17.4%, up 70 basis points versus prior year. As a reminder, our second and third quarter adjusted EBITDA margins are generally higher because of seasonality in our business. As you know, we offer a range of products through a razor-razor blade business model where the rental or sale of water dispensers creates high-margin recurring revenue generated from our water solutions. We saw an increase in the level of sell-through in our water dispenser business to approximately 215,000 units in the quarter. Higher retail prices reflected the continued impact of tariffs imposed on imports from China. Consumers continued to purchase new Primo Water dispensers and demand remained strong. Water dispenser sell-through represents the units sold by brick-and-mortar and e-commerce retailers to the end consumer. This is an important metric for the company because these water dispenser sales drives connectivity to our water solutions, resulting in recurring higher-margin revenue. The sell-through units are a leading indicator of the future organic growth of our water solutions. As expected, the sell-in, or what we sold directly to retailers for Q1, continued to be impacted by efforts to right-size inventories that were increased during 2022 supply chain challenges. Our consolidated Water Direct and Water Exchange business continued to experience strong top-line momentum during the quarter with 11% revenue growth through 9% pricing actions, 2% volume growth, and 84% customer retention in Water Direct and 99% retention in Water Exchange. During Q2, we will expand our mobile app, My Water+, to Poland and Israel and continue to update the app based on real-time customer feedback. Our digital focus in 2023 remains centered on new water customer acquisition through CostcoWater.com as one example, water dispenser sales, and connectivity to our water solutions. In Q4 of last year, we talked about being awarded a five-year contract to be Costco's exclusive service provider for large format bottled water delivery services direct to Costco consumer and business members. We're pleased with the rollout of this program, and we are increasing the number and frequency of in-store activities at Costco locations to capture the full benefit of this relationship. We expect this program to drive increased customer growth as we build out the program across the U.S. The growth of our Water Refill and filtration business continues to accelerate with an increase in revenue of 21% in the quarter, driven by price increases primarily on outdoor refill stations and improved refill station uptime and service levels. Our Water Refill business is one of our Water Your Way platforms where consumers refill their own empty 1-gallon or multi-gallon Primo Water bottle at any one of our 23,500 plus self-service refill stations. Customers in this business are counted as the retail locations of our refill stations and not the consumers physically using the refill stations. We maintain high refill station retention. There is tremendous potential for continued volume growth across the category. Water Refill targets a value-conscious consumer and provides similar margins to our other water offerings. This is another positive aspect of our business transformation initiated by the acquisition of Legacy Primo that provides a diverse platform of water services for all consumers. Customer resiliency related to the higher pricing action across our water solutions has been minimal. As we track this through a combination of metrics, including call center activity, customer retention, and customer growth. The balance between our demand and pricing continues to be extremely positive. It's important that we attract quality customers that will remain with our services long term. We're highly focused on attracting the right customer, not just to add a customer for the sake of growing customer counts. I would like to talk for a moment about operating efficiencies. The ability to serve our customers in the most efficient manner possible is a critical driver of both our short and long-term profitability. Our automated route optimization tool, or ARO, in North America continues to yield efficiencies. We will extend the use of ARO into our refill and filtration business later in 2023 to capture efficiencies and improve service levels that this tool can deliver. In addition to capturing cost efficiencies, the reduction in mileage supports our commitments to reductions in greenhouse gas emissions. A key service metric we focus on is on-time in-full, or OTIF. OTIF, simply put, is did we deliver to the customer on the day at the approximate time and with all the products they requested? OTIF in North America in Q1 was 95%. Another tool we use is our predictive staffing model, which continues to be refined and produces outstanding results. During the quarter, we improved our targeted staffing levels to 100 of route delivery positions filled. We continue to believe that our incremental investments in our people and the use of our predictive staffing model will enable us to deliver our 2023 targets and beyond. Last month, we published a 2021 supplement to our 2020 ESG report. I'm pleased with the progress reflected in the latest update. Some of our notable accomplishments described in our supplemental report include achieved carbon-neutral certification via The CarbonNeutral Protocol while advancing clean drinking water infrastructure in vulnerable communities. Achieved all stated DEI targets. Replaced over 9,000 MWh with energy certificate attributes, powering our European operations with 100% certified renewable energy certificates. Announced the strategic exit of the North America single-use bottled water retail business that produced over 400 million HDPE plastic containers annually, reducing the equivalent of 50,000 metric tons of CO2, and reduced our global greenhouse emissions by 20% over 2020. We expect to publish our 2022 ESG report later this quarter. As we shared last quarter, for the full year 2023, we expect revenue to be between $2.3 billion and $2.35 billion, with normalized revenue growth in a range of 6%-8%. We expect full year 2023 adjusted EBITDA to be between $450 million and $470 million. Both financial guidance items exclude any tuck-ins we might complete throughout 2023. For the second quarter of 2023, we expect revenue between $575 million and $595 million and adjusted EBITDA of between $113 million and $123 million. Primo Water is well-positioned to achieve our long-term growth targets. We benefit from long-term tailwinds, including a favorable shift in consumer demand toward health and wellness and concerns with aging global water infrastructure. We continue to invest in our digital platforms to enhance the customer experience and in new innovations for our water dispensers to support connectivity to our water solutions. We have a compelling financial profile, which we continue to enhance through debt reduction, opportunistic share repurchases, and increases to our quarterly dividend. With continued efficiency improvements that expand our route capacity and increase on-time and in-full delivery, we will continue to drive further adjusted EBITDA margin expansion, leading to increased returns on investing capital. I will reiterate that our strategy is working. We're confident in our ability to deliver our 2023 guidance. I'll now turn the call over to our CFO, David Hass, to review our first quarter financial results in greater detail. David? Thank you, Tom. Good morning, everyone. Starting with our first quarter results, consolidated revenue increased 4% to $547 million, compared to $526 million. Excluding the impact of foreign exchange, normalized revenue increased 12% for the quarter. adjusted EBITDA grew 8% to $95 million, which represents 70 basis points of margin expansion. Excluding the impact of foreign exchange, adjusted EBITDA grew 9%. The effect of price increases, volume growth, and strong demand increased profitability. Turning to our segment-level performance for the quarter, North American revenue increased 4% to $412 million, compared to $397 million. Excluding the impact of foreign exchange, normalized revenue increased 12%. Organic revenue grew by 11% in Water Direct and Water Exchange, which included 10% price or mix and 1% volume growth. Adjusted EBITDA in North America increased 7% to $85 million. In our Europe segment, revenue increased by 8% to $69 million. Excluding the impact of foreign exchange, normalized revenue increased 20% with growth in our residential customer base and B2B volume as Europeans continue their return to the office. Adjusted EBITDA in the Europe segment increased 61% to $14 million. Excluding the impact of foreign exchange, Adjusted EBITDA increased by 69%. Turning to our Q2 and full year outlook, we expect consolidated revenue from continuing operations for the second quarter to be between $575 million and $595 million, and that our second quarter Adjusted EBITDA will be in the range of $113 million to $123 million. For the full year of 2023, we are reaffirming our guidance with revenue projected to be between $2.3 billion and $2.35 billion, with normalized revenue growth in the range of 6%- 8%. We still expect full year 2023 adjusted EBITDA to be between $450 million and $470 million. Our 2023 CapEx consists of 7% of revenue, plus an incremental $30 million for a total of approximately $200 million. As a reminder, we determined that during 2023 and 2024, we will invest an incremental $30 million per year as opposed to the $50 million noted in our November 2021 Investor Day. This decision is based upon our confidence and run rate performance that enables us to reduce the investment dollars and deliver the 2023 and 2024 outlook. Key initiatives to be funded from our CapEx plan include driving digital growth, leading dispenser innovation, building a more environmentally friendly fleet, installing more efficient water production lines, which will reduce water usage and increase productivity, and driving growth in refill and filtration with refreshed signage and branding of our existing units, the development of our on-the-go units and new filtration innovations. We expect to return to our normalized total CapEx spend of approximately 7% of revenue in 2025. For 2023, we expect interest expense of approximately $70 million-$75 million. We currently expect $20 million-$25 million of cash taxes due to the utilization of Net Operating Losses or NOLs in 2022 related to the properties we sold last year. While we are limited in the amount of NOLs we can utilize each year, we do have NOLs available in 2023 and 2024. adjusted free cash flow is expected to increase to approximately $130 million in 2023, which includes the assumption that we monetize several properties. This is a significant step up from last year's adjusted free cash flow of $85 million and is primarily driven by increased earnings and reduced supply chain impacts on our working capital. The $130 million contemplates increased cash taxes for potential property sales and could result in higher free cash flow depending on the timing and outcome of these property transactions. We expect further increases in our free cash flow in 2024. As we mentioned during our Q4 call, we continue to explore opportunities to monetize properties that have realized significant appreciation and value. We plan to use the net proceeds of these property sales to fund components of our capital allocation plan, including, among other things, debt reduction and our opportunistic share repurchase program. As part of the opportunistic share purchase program, during 2022, we repurchased approximately $24 million. During the first quarter, we repurchased another $17 million, bringing the total to $41 million of the one year, $100 million opportunistic share repurchase program, which began last August. The repurchase program reflects the board's confidence in our future performance and our continued long-term cash flow generation and demonstrates our ongoing commitment to providing value for our shareholders. We remain focused on achieving our adjusted net leverage ratio target of below 3x by the end of 2023 and to less than 2.5x by the end of 2024. As a reminder, our current debt maturities are in 2028 and 2029, and we therefore have no reason or benefit to refinance any of our debt and are pleased with our current debt structure. Regarding our tuck-in M&A, for 2023, we expect to invest $20 million-$30 million as we focus on our organic growth as well as take a patient approach due to macroeconomic factors that might weigh more on smaller operators. Yesterday, our board of directors authorized a quarterly dividend of $0.08 per common share, which represents a 14% increase over last year's quarterly dividend rate. Our performance reinforces our confidence in our ability to deliver sustained organic revenue growth supported by recent gains and new points of distribution in our exchange business, geographic expansion of the Costco in-store events resulting in an increase in the number of events in North America in our Water Direct business, as well as the improved performance of the refill business. These gains are a result of our commitment to improve the customer experience through increased service levels and continuing investments in the digital experience, customer satisfaction, and operating efficiencies. I am excited about the opportunities that we have in front of us. We continue to execute our strategy and are making solid progress in our transformational journey. We have the right plan and the right team to win. Our customers, associates, and shareholders can all share in our success as consumers migrate toward healthy hydration solutions. I will now turn the call back to Tom. Thanks, David. This quarter marked the three-year anniversary of our acquisition of Legacy Primo and the sale of our coffee and tea business. I think it is important to take a moment and reflect on what our team has been able to accomplish during its ongoing transformation from the former Cott and Legacy Primo businesses to the new Primo Water. We leveraged our highly variable cost structure to right-size our businesses to adapt to the economic environment in a consumer base that shifted to more in-home consumption. We increased our revenue and earnings through improved scale, reach, and better execution. In the last 5 years, we've expanded adjusted EBITDA margins from Cott's 13% to Primo Water's 2022 19%. We've returned capital to our shareholders through a steadily increasing dividend and opportunistic share repurchases. We successfully integrated tuck-in acquisitions in our Water Direct businesses and expanded our global footprint. We increased our understanding, commitment, and capabilities in ESG. We've been able to reduce our impact on the environment by becoming carbon neutral and eliminating single-use plastic from our North American retail operations. We've assembled a strong team and are excited to share our progress as we continue to realize benefit from embracing sustainability as a core strategic pillar of our business. Prior to the pandemic, approximately half of our customers, and even more in Europe, were businesses, many of which closed for much of 2020 and 2021. Further hurdles included high inflation, fluctuating foreign currencies, tight labor markets, 25% tariffs on water dispensers manufactured in China, and global supply chain constraints. Our strategy is clearly working, and we're pleased with our past accomplishments, and we're even more excited about our future. We're one of the only pure-play water platforms and benefit from a large and growing revenue base. Our high single-digit long-term growth targets are driven by the connectivity of water dispensers to our water solutions, with supporting consumer tailwinds that include focus on health and wellness and concerns with aging global water infrastructure. We have a healthy balance sheet, a compelling long-term growth outlook, and an attractive margin profile that we believe will generate adjusted EBITDA approaching $530 million, with margins of approximately 21% and an adjusted ROIC of 12% by the end of 2024. Once again, I'd like to thank the Primo Water associates across the business for their tireless efforts to serve our customers. Before we open the call to questions, I just want to remind everyone again that this call is to discuss our Q1 results and outlook. We will not be taking any questions about our settlement with Legion, but I encourage those of you who are interested to visit our website to review our proxy materials. With that, I'll turn the call back over to John for Q&A. Thanks, Tom. During the Q&A, to ensure we can hear from as many of you as possible, we would ask for a limit of one question and one follow-up per person. Thank you. Operator, please open the line for questions. Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. If your question has been answered and you would like to withdraw from the queue, please press star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question will come from Derek Lessard at TD Cowen. Please go ahead. Yeah, good morning, everybody, and congratulations on a great quarter. Thanks, Derek. Good morning. Just maybe on that and how this ties into your outlook, you know, you either beat or came in at the high end of your guidance. However, you didn't raise your full-year guide. Maybe it seems like maybe you're erring on the conservative side, but maybe if you could just add some context and your overall thoughts behind that? Yeah, Derek, look, we're pleased with the quarter, right? It's a solid start to the year. We're confident in our current guidance and our ability to deliver on that. I think it's early, and I think there's a lot going on in the external market, and it's appropriate for us to be prudent in terms of our forecast and, you know, stick to our knittingAccomplish our targets and deliver the full year guide and see how the next quarter or so develop. Okay, that's fair. Maybe a second one from me is, I think it's the first time that we're hearing you guys talk about in detail about free cash flow. Thanks for that. Just maybe David, if you could maybe walk us through again how you got to the $130 million and as well as the decision and the importance that you're placing on free cash flow. Thanks, Derek. It's always been an important metric for us. We really think this year, with much of the COVID disruptions behind us and the recovery of the customer base, including the consumption of our European side of the customer base, allows us more clarity for a metric, again, that we've always found important. And it allows us to start to showcase the platform we have as a transformed company. In general, as kind of the, the script suggested, walking down from our midpoint of guidance, removing approximately $200 million for the CapEx. The interest is relatively spoken for on our senior note, with obviously some of that variability coming in our cash flow loan. Cash taxes would be the most variable, again, affiliated with the properties as discussed and how there could be additional upside depending on timing and transaction value there. Again, on the working capital side, which would've been not necessarily overtly covered, we tend to reserve a few million dollars there as our AR balances tend to grow. While the collection of that doesn't change, the AR balances naturally grow as pricing starts to go into the customer, kind of, you know, customer pricing activities. I think that would give you a pretty good line of sight of how, you know, at this point, $130 million is that starting value for our viewpoint of the year. Derek, this time I also think that, you know, clearly last year was impacted by supply chain and the Q2, Q3 inventory adjustments that we made. We thought it important to demystify that and, you know, connect the dots on free cash flow post-2022 supply chain challenges. Hello? Your next question will come from Andrea Teixeira at J.P. Morgan. Please go ahead. Hi. Good morning. Thank you, operator. My question is on the cadence of the quarter and the guidance reiteration despite the strong start of the year. Seems like most of customer names that we cover generally started off strong and then the trends moderated to a softer March. I was wondering if you can comment how you progressed and then the trends into April. Related to that, with the strong performance in the first quarter and at and above high end of that range, with the second quarter probably a little bit softer than the Street was anticipated, sorry, and reiterated fiscal year. Can you kind of like let us, kind of like think about how you are budgeting, understand this beginning of the year, but just to see how conservative you are. As a follow-up, can you talk about the organic volume and price mix components for the Water Direct business this quarter? I mean, any data on consumer additions, churn, and how we see this progressing for fiscal 2023. Okay, Andrea Teixeira, thank you. That's quite a question, but let me try and dissect that. Let's start with Water Direct, price and volume. Water Direct in the company was up on a revenue basis 11%, 9% from price, 2% from volume. We're pleased with that performance. You may remember that we have, last quarter, talked about the cadence of our revenue growth in 2023, and that we anticipated higher revenue growth from price as we lapped the actions that we took in 2022. As Costco built and we rolled out that program across the U.S. through the course of the year, that we'd see more volume growth coming from new customer growth and of course, consumption growth in the installed base on the Costco side. That's the North American side of the story. We are benefiting from both price and volume in Europe, and that is, we took, as you may recall, we took more aggressive pricing actions later in Europe, and we saw some of that manifest in Q4, but clearly manifested in Q1. We also are enjoying more consistent return to work. It's still a tailwind for us, right? Because we're not back to pre-pandemic levels, but we saw good volume growth from our European operations in the first quarter. You know, in terms of the cadence, we're confident in our 2023 guidance. We think there's a lot going on in the market, and we think it's appropriate for us to be prudent to let the next quarter or so play out, for all external inputs on our business. No, I get that, I think the two questions that were unanswered. One is the churn. I mean, we all appreciate that, you know, you had the volume, I think as obviously investors appreciate in their investment process to see how the churn is progressing, and ideally a breakdown of how many additions and how many people got out with the price increase, in particular in Europe. Then, I mean, in an environment where your stock is down as much as it is, and obviously investors are not happy with, you know, either the level of conservatism or what you've been willing to disclose, or both. Yeah. I'm not gonna react to the first hour of... hour and a half, hour of the market reaction this morning to the stock price at all, right? I think we delivered rock-solid numbers that beat what we said it would be, we remain confident in our performance in 2023. Our churn in the script, we articulated what a direct churn at 84%... excuse me, customer retention at 84%, which is consistent with prior quarters. We're not seeing any meaningful changes in the number of customers in or out based on pricing. We've shared in the past that we think it's pretty elastic. I think the best manifestation of the resiliency of our customer base is 11% revenue growth from our direct business, which is a combination of largely price, but also with that 2% volume performance. I can't speak to a market's, you know, anybody's reaction to are we overly conservative or not. I think there are many others that are frankly being prudent in terms of their views of what the next 90, 180 days hold. Can you help with just the cadence of what things are happening now in April? Or? Yeah. All you said, is positive, and that's why, I think we're all puzzled. Yeah. We don't see any material changes to April compared to our first quarter results, which is obviously supports our view for the full year performance. You know, it's fundamental and are expected to performance in the second quarter. Pretty consistent performance as we move from the third period to the fourth period. We're pleased with where we are. Thank you. Thanks, Andrea. Your next question will come from Dan Moore at CJS. Please go ahead. Hi. Good morning. It's Pete Lukas for Dan. In your prepared remarks, you mentioned that you were pleased with the rollout of the Booth program at Costco, and I think in Q&A you said, look for that to increase your volumes. Historically, you've added about a quarter of your customers through that program. Can you just talk a little bit more about what you expect it to look like in the second half and how long you would expect any outsized growth to be sustainable there? Yeah. Good morning, Pete. You know, as you think about the Booth rollout program, it happens most weekends and it's sequential. We would expect good growth, more customers and the volume associated with those customers in Q2. It will expand obviously and get large in Q3 as you build more and more customers as a result of that program. It will be much stronger in Q4. Frankly, it's a tailwind as we move into 2024 because we'll benefit in Q1 next year of 100% of the benefit of the rollout of the customer program. It has historically been about 25% of the new customer adds, as we've disclosed. We haven't disclosed how much more it will be, but it will be a higher percentage of new customer adds in 2023. As I said earlier, what you'll see is our revenue growth will shift as we move through the course of the year as we benefit from more customers as a result of that, of that Booth program. Very helpful. Thanks. You talked a bunch about Europe, improving pricing and return to work there. Just in the, in a bigger picture, how do you look at Europe now compared to how you did 3 to 4 years ago? Do you think it continues to remain a drag on growth for the next several quarters, just given all the macro uncertainty? It's, you know, obviously it was negatively impacted meaningfully during the pandemic. You may recall, Pete, that customer base was something on the order of 90% commercial. The pandemic and closed offices had a pretty significant impact on that business. While we're not back to pre-pandemic levels, that's now begun a tailwind as Europeans return to work. We're pleased with the volume recovery. We're pleased with the customer retention because we have pushed through pricing. I think the adjusted EBITDA performance for Europe was significantly higher than a year ago. I don't have the number at the top of my head. It's pretty big number. We're confident that that business will continue to recover and produce meaningfully higher adjusted EBITDA margins for us on a go-forward basis. Oh, very helpful. Thanks. I'll jump back in the queue. Thanks, Pete. Your next question will come from Derek Dley at Canaccord Genuity. Please go ahead. Yeah. Good morning, guys. Morning, Derek. Just, you know, wondering how you guys are where you're seeing the big buckets of inflation across the business? You know, are you confident that you can continue to price appropriately for this, or is the 9% pricing growth that you implemented, are you comfortable with that for the next few quarters? Our three big components are labor, fuel, and freight. Obviously, ocean freight has mitigated, right? That is no longer the headwind that it was last year, and that's, you know, associated with all the supply chain and partially, largely dispenser transportation from China. That is not a headwind today, thankfully. Fuel is resistant, right? Now, I've shared this in the past, diesel fuel has been more resistant in terms of price changes than unleaded. We still face that. Then the labor costs are really a flop over from last year, right? The actions that we took. We did manage to cover the $16 million or so of incremental cost in the quarter, and we think we have the pricing actions in place to continue to cover the inflation cost. If necessary, we'll take further actions based on, you know, how things evolve over the next quarter or two. I think, Derek, the best way to think about it is we covered the significant changes last year, I think it was $84 million of inflationary cost in 2022, and we took the actions in real time to keep pace with that and still managed to increase our EBITDA margins in 2022 versus 2021. I think we have the right rigor and the execution capabilities to cover. Yep. Okay. That's helpful. I guess just given the challenging consumer spending environment that we're in or that we're entering, like, are you seeing a shift with consumers shifting perhaps more towards the Water Refill business? I know it outperformed the Water Direct. Is it a function of consumers kind of trading down? Can you just give us some color on the margin differential between Water Direct and Water Refill, if any? Yes. Let's I'll take the first part of that and give the second part of that to David. We've been very focused on improving our service execution on refill. Our uptime number on refill today, as an example, is higher than 98%. That wasn't always that way. We've talked about that in the past. We also took a price increase on our refill machines and, you know, essentially basically executed beginning Q3 and Q4, and we're seeing the benefit of that, and we're not seeing any customer resistance at this point. The volumes are recovering, so we're quite pleased. Our growth is from price action in refill as opposed to any known, to us anyway, migration of consumers down trading from any of our other services. I think that what supports that is price and volume growth in the Water Direct business, great performance in our exchange business, and the continued stickiness of our customer base. We think it's price and execution on refill that's driving it. The margin question, David, I don't know if you can help with that one. On the margin side, you know, it's fairly agnostic to our other services. The difference obviously being that on a% basis. On a% basis, they're agnostic. On a dollar basis, just from sheer difference in what consumers or what revenues we generate on a per unit basis, you would get different gross profit dollars. On a margin basis, we're agnostic, and that's exactly why we love the diversity of the services where as the consumer performs on all three, you know, we are able to sort of generate equivalent profits across the business. I'd say the one nice distinction about the refill and filtration team is, you know, compensation differences between our Water Direct RSRs and this side of the house where we're able to keep more of the upside to a performing business there. obviously on the Water Direct side, largely the compensation is commission-driven. I think again, it's a nice diversity platform for us in terms of consumer choice, sort of, you know, spreads across all three, and we're able to make equivalent profits. Okay, good. That's helpful. Thank you. Thanks, Derek. Your next question comes from John Zamparo at CIBC. Please go ahead. Thank you. Good morning. Good morning, John. I wanted to start on maybe Europe plus rest of world. I'd like to get a sense of where EBITDA is in dollars from these regions versus 2019. Really just trying to get a sense of how much more ground there is to cover to get that business back to where it was. For the Q, you know, EBITDA would have been about $14 million for Europe. On the other side, you know, we have our corporate costs and other activities in there, we'd have to do some, you know, work to bridge that back for everyone. The continuation there is again, the resumption of in-office and return to work, and our company beginning a concerted effort to shift customer acquisitions balance into residential to provide more of that diversification that we enjoyed in the U.S. today and sort of in our future. Again, on the balance there, Europe has recovered nicely. It is showing meaningful signs of getting back to sort of pre-2020 levels. you know, I think that's what we're really, you know, pleased with the team, and really not seeing any disruption in customer opinion, customer churn. It again seems pretty status quo of being able to tolerate sort of the actions we've taken across price. Yeah. Okay. Then maybe we can move to labor expenses. I wonder if you can quantify the percentage increase in labor costs you saw in Q1 versus some of the past two quarters. I know this is noisy because of the compensation structure that you just referenced, David, but is there a way you can quantify, the inflation you're seeing in labor versus the past year or so? I wanna say, we haven't gone down the path of peeling out labor as a subset. We've shared last year something on the order of 10%-11% inflation costs, labor, fuel, and freight. In this quarter, that $84 million was something on the order of 7.5%. It is lower than prior run rate, and hopefully the future forecast of, you know, further declines in inflation come true, we will benefit from that, you know, as we move through the potentially benefit from that as that happens in coming quarters. We haven't peeled out each subpiece of that at this point, John. Okay. No, that's helpful. Thank you very much. Thanks, John. Ladies and gentlemen, once again, if you would like to ask a question, please press star one now. Your next question will come from Kevin Grundy at Jefferies. Please go ahead. Hey, good morning, everyone. Morning, Kevin. Question probably for David, just to come back to free cash flow. I thought at least directionally, there was going to be some improvement in inventory days this year, just kinda given where you finished with some of the retailer destocking last year. That may indeed be the case, but it doesn't sound like it's going to be enough to sort of drive working capital improvement. If I sorta like tumble through the numbers, it seems like working cap is gonna be like a $30 million drag on free cash flow this year. David, maybe just spend a moment on that piece, just the working capital piece and why it seemingly is going to be a drag this year? Yeah. We would peg that working capital drag closer to probably $20, Kevin. I think the delta there is really conservatism around trying to understand the full tax liabilities of some of the property monetizations. If those come true, understanding sort of the bridge there, that would be the difference of, you know, you're trying to use, I think, that full $30+ million to bridge down to why $130 would be the answer. Again, I think we're saying probably closer to $20, and we're reserving, you know, kinda $10+, et cetera, for excess potential cash tax. Again, properties have not been monetized to date. They're in our, you know, potential future, and we're sort of being cautious to not give out a free cash flow guide that we'd have to walk back just as we pay additional or incremental taxes on those properties. We won't know the exact timing and value until every property sort of in the hopper has been officially and finally monetized with the various jurisdictional sorta cash taxes that come with that. Okay. That number would be accurate in your head, but we're kind of, again, putting more of that balance after $20 million toward the tax side. Okay. Then how about longer term, with respect to free cash flow? Is it sort of appropriate to ground the street at any sort of, like, free cash flow conversion number? How are you thinking about that? How do you wanna sort of orient the market? I think part of it, Kevin, would be grounded in our previous communications on CapEx, right? We've said we'll spend the 7% plus $30 million this year, which gets to roughly $200 million. We have a similar 7%. Obviously, revenue will be higher, but the same $30 million incremental next year. Then in 2025, our plan is to eliminate the $30 million. That $30 million essentially drops, right? If you said, "How do I think about it?" That's for sure how I think about it narrowly from there. Hopefully that gives you some context of the next 3 years, right? I just wanna go back and just touch on David's working capital just for a second. The real change in any working capital this year, 'cause we're making progress on the inventory side of your question, is really about growth in AR associated with higher revenue. That's naturally gonna go up, and that really drives the delta in just narrowly working capital. We're making good progress on the other challenges we experienced in 2022. Just that point of clarity. Okay. All right. Very good. I can pass it on. Thanks for the call, guys. I appreciate it. Thanks, Kevin. Appreciate it. There are no further questions, so I will turn the conference back to Jon Kathol for any closing remarks. Thanks, Michelle. This concludes Primo Water's first quarter results call. Thank you all for attending. Ladies and gentlemen, this does conclude your conference call for this morning. Primo would like to thank you all for participating, and we ask that you please disconnect your lines.