Good morning. My name is Marissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Primo Brand Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Logan Grosenbacher.

Welcome to Primo Brands Corporation's Third Quarter 2025 Earnings Conference Call. The call is being webcast live on Primo brands website at ir.primobrands.com and will be available there for playback. This conference call contains forward-looking statements regarding the company's future financial results and operational trends, estimated synergies, impacts from economic factors and other matters. 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. 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 third quarter earnings announcement released earlier this morning or in the Investor Relations section of the company's website at ir.primobrands.com. In addition to slides accompanying today's webcast to assist you through our discussion, we have included a copy of the presentation and a supplemental earnings deck on our website. Certain information discussed on this call concerning our industry and market position is based on information from third-party sources that we have not independently verified and is subject to uncertainty. I'm joined today by Dean Metropoulos, a member of the Board of Directors and former Nonexecutive Chairman; Eric Foss, Primo Brands Chairman and Chief Executive Officer; and David Hass, our Chief Financial Officer. Our prepared remarks will begin with Dean discussing the leadership transition we announced this morning. Following that, David will discuss the third quarter performance of Primo Brands and the outlook for the full year 2025. And then Eric will share his thoughts on the business as he steps into the role as Chairman and CEO. Following that, Eric and David will take your questions. With that, I will now turn the call over to Dean.

Good morning, and thank you, everyone, for joining us. As you have probably seen this morning, we announced that the Primo Brands Board of Directors appointed Eric Foss as Chairman and Chief Executive Officer. Eric is an experienced executive, having served as Chairman and CEO of Global Consumer businesses. He has served as Director of the company's Board and its predecessor, Primo Water. I welcome Eric's energy and abilities as a transformative leader. He is known for his people-first leadership philosophy, brand-building experience, operational and executional expertise and the ability to drive long-term growth through customer focus, innovation and creating a winning culture. He's highly qualified to lead Primo Brands future growth and value creation. I want to also express our deep confidence in the future of Primo Brands with its unique historic brands and unmatched and now highly integrated and efficient national network that will reach consumers in every aspect of their lives. In addition, Primo Brands is a major beneficiary of strong tailwinds that are driven by an unprecedented consumer focus on healthy hydration. We're all very confident that Eric will lead Primo brands in this exciting new future, and we thank all of you investors for the continued support and interest in our Primo brands. Thank you. In conversations with the Board, as we move into the next phase, following our breakthrough merger and integration, now is the right time for me to step away as Non-Executive Chairman. I will remain on the Board as a director and will support Eric during the transition. Robbert will lead the company and the Board to pursue other interests. We want to thank him for his hard work and contribution to the consolidation and integration of Primo Water and BlueTriton Brands during the past year, and we wish him continued success. I want to express my deep confidence in Eric as he assumes his new role and thank all of you again for your continued interest in Primo Brands. With that, let us turn the call over to David. Thank you. David?

Thank you, and good morning, everyone. As you know, we announced a lot of news this morning. In parallel with today's management transition, our team has been hard at work decisively executing against our strategy to drive organic brand growth, synergy capture and operational excellence across our platform as our integration progresses. We are working with a clear sense of urgency to realize our potential as the leading branded bottled water player in North America an important category that consumers continue to rely on for everyday healthy hydration. We are pleased that improvements in operational and financial performance in our Q3 2025 results demonstrate the resilience in our business, strength of our brands and success across channels and offerings, reinforcing our confidence that Primo brands will return to delivering against our long-term financial algorithm. Overall, for the third quarter, we generated net sales of $1.766 billion, a 1.6% comparable year-over-year decline, but a 90 basis point improvement from the 2.5% comparable year-over-year decline in the second quarter. Our top line results reflect ongoing unit case volume growth, which increased 0.7% versus the prior year period with investment in price and promotion in our home and office delivery network as we prioritized customer retention during the quarter. We delivered profitability ahead of expectations with comparable adjusted EBITDA growth of 6.8% year-over-year to $404.5 million for a margin of 22.9%. I will discuss these results in more detail shortly. First, let me turn to an update on our integration and synergy capture. This summer, we worked with a sense of urgency to remediate challenges that emerged in our delivery business. And I am pleased to report that service levels are now back to pre-integration levels. Importantly, demand for our 5-gallon product remains strong as evidenced by the year-over-year net sales growth for…

Thank you, David. It's great to be here, and thanks to everyone for joining us today. Let me start by saying what a privilege it is to be Primo Brands new Chairman and CEO. For those of you who don't know me, I've spent my entire career running global consumer-centric asset and people-intensive business models in the food and beverage industries. As CEO, I believe the purpose of the company is really the centerpiece of any enterprise. Our purpose as the premier healthy hydration company in North America is to hydrate a healthy America each and every day. I'd like to thank all of my Primo brands teammates for their passion and tireless efforts in focusing on our consumers and customers every day. Over the last couple of years as a member of the Board of Directors of legacy Primo and now Primo Brands, I've had a front row seat and a hand in helping to create Primo brands to be a bigger, stronger and faster company with not just a purpose, but with promise in a bright, bright future. Since coming together about a year ago, our team has made a lot of progress. There's still more work to do to achieve our full potential, consistently meet our customers' expectations and deliver results that are consistent with our commitment to our shareholders. I feel blessed to step into the CEO role of a company that has strong leading brands across all consumer consumption and channel purchase options. I'm also fortunate to have an exceptional and flexible go-to-market system that helps us drive speed, reach and frequency. That aims to meet or exceed the expectations of our customers. We have a passionate, capable and committed team. And I'm a big believer in the phrase, the team with the best players…

Thanks, Eric. To ensure we address as many of your questions as possible, please limit yourself to one question only. And if we have time remaining, we will repoll for additional questions. Operator, please open the line for questions.

[Operator Instructions] And your first question comes from Derek Lessard with TD Cowen.

I just had one for me. Is there anything that fundamentally changed from the time you closed last year to now, I mean, you had a hiccup in Q2 that seems to be fixed. Anything that we should be thinking about that justified the leadership change?

Thanks, Derek. This is David. I think, again, the Board felt this was the appropriate time for a change. They've made that change with Eric stepping into the role. Fundamentally, no. I mean, from the macro perspective, our consumer remains very healthy. The category remains very healthy. In the retail part of our business, the share gains continue to express the brand strength that we possess, and how our consumers are gravitating to those brands, notably the premium side, which again, put another quarter up of 44% growth. This all largely remains contained to the home and office side within the direct delivery channel. But no, I think broadly speaking, this was the time for a change, and that's what happened.

And Derek, it's Eric. If you wouldn't mind, I'd just make a brief comment. I think as I step in, I think the Board felt like this was the right step for the company at this point in its journey. I think David referenced that and it's really all around maximizing the full potential of this business. So I want to emphasize that the long-term investment thesis here is still fully intact, right? We have a very attractive category, large and growing. As you continue to see consumer tailwinds around health and wellness and hydration, that's going to continue to be at the forefront of their decision-making matrix. And we're the #1 player. We've got leading brands. In the quarter, we actually saw an improvement in household penetration. We saw volume growth on the retail side, along with some share momentum. So I really do think that the long-term kind of value creation thesis and the financial model is still fully intact. We have an issue that, as you mentioned, started a quarter ago that we've got to get our hands around, which is really around last mile direct delivery.

Okay. That's great detail. And then just maybe one follow-up to that, David, is it -- I guess, is it safe to assume that the majority of the integration challenges are now behind you guys?

Yes. Again, as I mentioned in my prepared remarks, product availability and stability and days on hand is back to their normal potential. Most of the routes are performing at or above expectations from pre-merger. And then when you look at some of the sort of consumer-oriented data points, call volumes are now back below sort of pre-integration levels. And then consumer sentiment, while that I understandably takes a little bit of time to rebuild trust, those that are choosing to post are starting to improve their sentiment and the large negative sentiment spikes we saw during the peak integration challenges have pretty much dissipated. So we feel very comfortable there. It's just a matter of time of resuming volumes to those customers and continuing day in and day out of building trust back with those customers.

Okay. And congrats to Eric. Looking forward to working with you.

Your next question comes from Daniel Moore with CJS Securities.

Yes. I wanted to ask, I know we'll get into a lot of detail in terms of the numbers, but high level, either for Dean or Eric or both, we had the disruptor Hawkins that said, the integration much more complex and challenging than we expected or believed it to be. Was it simply a case of moving too quickly? Or are there sort of naturally larger dissynergies at least initially involved than expected, projected. Any high-level thoughts there would be really appreciated?

Sure, Daniel. It's Eric. I'll take that. I think again, to use the term, I think most of the direct delivery disruption has been self-inflicted. And sometimes mergers can be complicated and more complex than maybe even anticipated going into them. I do think we probably moved too far too fast on some of the various integration work streams. There's no doubt that, that speed impacted product supply. There's no doubt that, that speed impacted our ability to get through a lot of the warehouse closures and route realignment without disruption. And the ultimate output of that was the customer service issues that we've highlighted. There are also where, I believe, some just integration issues related to the technology move over. But at the end of the day, as David said, the team has really been and continues to work hard to address those and correct those. I think in the quarter, David highlighted this, we saw continued improvement on multiple fronts. I think on the product supply front, we're pretty much corrected on that relative to in-stock conditions. But we still have work to do at the moment of truth around making sure our deliveries are on time with the right product. We did see each of the kind of process metrics around customer call volume and did see both improvements in the quarter on customer sat scores. But again, there is more work to do on this front to completely get the issues solved and corrected.

Really helpful. And a quick follow-up. Are there -- if we sort of look at Q3 as a baseline, is there more cost investments that will need to be made in terms of routes, drivers, customer service, marketing, et cetera, kind of more permanent costs that may need to incur relative to our initial expectations to maintain that customer service.

Yes, Dan, this is David. You'd be right there. Across Q2 and Q3, we started to move some routes back in to stabilize success rate across the customer visit. Obviously, we've had some, what I'll call, middle mile or interbranch transfer cost to sort of keep product supply stable. Those will largely dissipate and again, once we have a more stable and consistent pattern of delivery success, which has been happening post quarter to today's call, that will allow us to start to slowly work back out some of the excess routes or what I'll call over time or weekend support, which will bring our units per route up. And as you are familiar, legacy Primo Water really had a large drive toward that productivity at the route level, that will resume. And as we head into '26, we'll really start attacking miles, which was really part of the main benefit of this merger, which was the density of the route between the two customer bases. So yes, I would say that, in short, we've had some surges in costs to both handle call center and the routes and the labor across the middle mile. And those things will start to unwind as we exit the year. And that puts us back into allowing the synergy capture to start to reveal itself more clearly in the P&L.

Your next question comes from Eric Serotta with Morgan Stanley. .

So a shorter-term question and a longer-term one. In terms of the short term, can you help us unpack the fourth quarter guidance between direct delivery and retail? It would seem that if retail is going to be -- growing even modestly, the guidance implies a pretty steep decline in direct delivery. And along with that, like what was the exit rate, whether you want to talk September or recent weeks, like what is HOD running in terms of a year-on-year rate now? And then longer term, just wanted to circle back on the prior question, make sure I understood correctly. You're expecting the incremental costs to dissipate? Are you reaffirming the earlier back from February, the '26, '27 EBITDA margin targets or should we assume that between or EBITDA dollar target, should -- or should we assume that even if the majority of these costs dissipate that there is some incremental cost that will be ongoing that will kind of lower the earnings power versus what you previously thought?

So yes, as mentioned, a lot of the -- let's go through the exit categories. So like office coffee, exiting on trajectory, the dispenser headwind from tariffs exiting on trajectory, exchange and refill performing to their pretty regular nice growth, nice consistent volumes. And then the retail business, obviously the largest part of our business, once we've been through the Hawkins moment, if you will, and weather being less of a challenge, it's going to perform and exit the year sort of on track with our previous revision back in August, which has about a 2% second half exit rate. So we feel very confident there. Obviously, that leaves us now with the direct delivery business, which is largely the HOD component. As I mentioned, I wanted to clarify just for people who are curious what all goes into that disclosure line in our earnings supplement. And that's largely the HOD part. And so again, we are at a moment where we're successfully visiting customers on schedule. It's accurately and to the maximum potential fulfilling their order, whether that be in the base 5-gallon unit, whether that be in a case pack unit or a premium unit that comes off the route. So again, most of that exit challenge remains just fulfilling volumes to the appropriate level, but we have greatly reduced friction by missing their original dates or things that led to call center or negative sentiment online. Transitioning to the second part of your question around margins. We obviously will have a lower base as we ideally exit the year at $1.45 billion in EBITDA. And approximately 22% margins. From there, we do intend to, again, unwind costs at the end of this year and early in Q1 and then resume sort of our margin expansion walk. Dollars obviously, will be slightly different than the original outline. We are not changing our synergy capture targets. And obviously, we'll look at 2026 when we provide full year guidance likely in February of next year. So again, I think it remains a very healthy story, a very healthy exit on service that's helping sustain our customer retention at this point, but it's really getting back into the merits of this original deal, which is the right route count, the right drivers, the right units per route and the right support cost in the business.

And Eric, I would just add to David's comments. I think as I mentioned earlier, the investment thesis is intact, but the long-term algorithm is also doable, and I want to make sure you hear that from my perspective. We have to get this business growing, and we certainly have plans to do that. But at the same time, we do continue to have margin opportunities. And so I think the way to think about this is there are multiple value creation levers available to us, multiple growth vectors. Obviously, the synergy capture is on track, and it's been executed pretty well, and we'll have ongoing cost and productivity initiatives as well that should lead to improved profitability, free cash flow generation and conversion and wealth creation -- value creation going forward. So again, I want to make sure that is fully, fully recognized.

Your next question comes from Bonnie Herzog with Goldman Sachs.

And Eric, congratulations. I look forward to working with you again. I also have a couple of questions on your direct delivery business. I guess, first, I really want to make sure I understand what drove the sequential deterioration in Q3. I mean did you lose more customers in Q3 than what you lost in Q2. And then I guess I'm trying to understand why the implied decline in Q4 is worse if service is improving. And then ultimately, curious if you expect these declines to persist into the first half of next year as well. And do you have any visibility into a return to your long-term algo for your total company of the 3% to 5%? I mean, should we think about that more of a second half '26 or '27 story? Just any help there would be appreciated.

Sure, Bonnie. Thanks. This is David. Again, we believe that July was basically the peak disruption in customers where our add was not outpacing sort of the churn or the challenge from sort of our integration friction. As we've exited Q3 and entered into October, that has largely stabilized. We believe we'll be at a point where we will be able to get to a net positive customer position in the month itself as we exit the year, and that requires us to then continue to recuperate some of those lost volumes from that period of time, if you will, of where that ultimate friction occurred with the consumer and our delivery customer. So it's largely isolated solely to the home and office side. Exchange is a business that runs off that truck. That business has resumed its growth as the consumer is shopping every day at our regional and national chains like Lowe's, Walmart, Home Depot, et cetera. When you move into next year, Q1 obviously was a 3% positive quarter, 4.2%, I believe, when we leap adjust it. So that will be obviously a difficult quarter to compare based on the exit rate and sort of our run rate within that home and office delivery business, but our optimism remains in the other parts of the company. And again, we'll continue to repair customer volumes in the home and office side that will get us back towards that long-term algorithm. But we'll comment specifically on '26 and longer-term outlook in February. Eric, anything else you want to add there?

No.

Your next question comes from Steve Powers with Deutsche Bank.

I guess following up on that. So if I heard you right, then net customer add losses will be assuming -- I don't know where we are entering the quarter, but if we're going to exit the quarter positive, they should be down relatively thinly -- relatively narrowly, which implies that the -- the sales decline in direct delivery is going to be a combination of either just lower velocity on those customers or lower value per customer because of price inducements or what have you. So is that right? What is the kind of the estimate around those variables? And then how do those -- how does the velocity and the kind of the value per customer pricing kind of dynamic flow into next year as you get back to net customer adds in your...

Yes. Thanks, Steve, for the question, it's David. With regard to the customers, again, in the closing months here of 2025, we'll be at the monthly level we believe we'll be back to an add position. That will take us a few months to sort of repair some of the losses. Again, what we really focus is on volume. So in the past using the exchange business, using the refill business and other things that consume 5-gallon units, along with the home and office delivery side. We believe we can get back to volume growth. That volume growth has also been complemented by upsell and premium that comes off route. At this point, part of the disruption, we really focused on was getting 5-gallon supply stabilized back into the hands of our branches, back into the hands of our consumers or customers. And as that stabilizes, that should help improve. As we head into '26, we're going to look across price pack architecture for the entire company whether that be retail, premium, our retail-oriented 5-gallon products like exchange or refill or the specific harmonization activities that occur in HOD, which was part of the original thesis that we had of bringing these businesses together with what I would call the pricing matrix that was not aligned appropriately for how we wanted to run the business at the local market level. So those will be all areas available for us with regard to growth vectors that we can sort of improve as we continue to work through the customer part.

Okay. And just to clarify, when you say net customer adds on a monthly basis, are you saying, you're going to be adding in December versus November? Or are you saying you're going to be adding in December versus last December?

Yes, we would just be, in the month itself. The adds less the quits of the particular month we'll be back to a positive position in the month itself. And as you -- the more months you string together of that outcome, you obviously start to replace sort of the trough of your base spread.

So adds versus the end of November?

That's correct.

Your next question comes from Andrea Teixeira with JPMorgan.

I was just hoping to see if you can speak to the -- kind of consumer dynamics in the purified water, in particular, I know you had increased some promo during the quarter to support some of the affordability we have been seeing in the consumer side. Can you comment to that? And then another question is how you're seeing distribution of the premium segment on the retail side, obviously, unfolding and how you can see this? Obviously, you had this 46% growth in the premium water segment, how we should be thinking as we enter 2026, any particular gains in distribution or even on-premise or off-premise that you wanted to highlight? And from there, also how you're going to balance this price pack architecture as we go into next year? And finally, welcome, Eric. Looking forward to working with you.

Thanks Andrea, it's Eric. I'll start and let David fill in. But I think if you really look at the consumer and how the consumer is engaging with the category and our brands, there's really a lot to like, I think, first and foremost, while you do have a change in consumer sentiment broadly, the reality is, is their appetite for healthy hydration hasn't waned as evidenced by the household penetration numbers in the quarter that were actually up for our brands, and we have a pretty significant penetration advantage versus our other key competitors. If you look at the brands really broadly, I'll come back to premium in a minute, but obviously, premium has been on fire and we'll continue to be on fire given some of the continued opportunities we have and just the brand strength of both Saratoga and Mountain Valley. So -- but at the end of the day, it's really important to come back to the broad, I think, strength of our brand portfolio. We're seeing good growth across that portfolio. The regional springs, Arrowhead, Ice Mountain, Poland Springs, et cetera, we saw in the category at retail. We grew our volume, we grew our revenue, we grew our -- both our volume and value share. So a whole lot to like. Relative to premium, we continue, despite great progress by our sales teams to have distribution opportunities. We're going to continue to invest in capacity. We referenced that in our prepared comments. The way I would describe it is we are in the very, very, very early innings of a long runway of opportunity for those brands. And I think relative to your pricing question, we're going to be balanced relative to the growth algorithm. It's going to be volume and price. You can expect -- other mechanisms.

Cut out there a little bit during that answer.

You have us now?

We have you now. Yes. Thank you for confirming.

I'm not sure where I was cut off. So let me double back. I think my point was from a consumer standpoint, really, really encouraging. We continue to create household penetration, both the category and our brands. Premium has been on fire. Saratoga and Mountain Valley have tremendous upside and runway ahead, good growth on our regional spring water. So at the end of the day, at retail, we grew our volume, grew our value share. Strong performance will continue on premium, distribution opportunities and investment in capacity, early innings with long runway ahead of us. And on pricing, I was mentioning that we'll be balanced in our approach, but start with the consumer, make sure we understand how she defines value and again, take advantage of that opportunity as we walk forward. David?

Andrea, I think all I'd add to that is as we head into '26, we've talked about the Mountain Valley supply constraint. That's coming online in the spring and summer. And we really think that helps unlock -- within these results, I would say Mountain Valley has been held back a little bit, so I really think that unlocks us for '26.

That's super helpful. I just want to maybe double click on the retail side, especially the purified. Is there any improvement there as you exit the quarter? And then a second clarification with the exit into the Israel?

We can hear the operator, and I did hear Andrea, but she was cutting out, if there was a follow-up.

Yes, please. If I can just follow up on, as you exit the quarter -- two follow-ups. One, as you exit the quarter, how was the purified performance, just to think about like if the consumer got slightly better as you exit? And then a clarification on the exit of the Israel operations. Like is that -- was that included in a headwind into the quarter or no?

No, let me start there, please, just to clarify for everyone. Israel had always been in discontinued operations since the announcement of the original international sale. So that had nothing to do with the quarter itself.

From an investor, and I figured that was the case, but yes, I wanted to clarify.

That's correct. And then with regard to the purified water, largely the disruptions within the home and office delivery space created the challenges there. But at retail, our Pure Life brands and the Primo Water brand that goes to market through the exchange and refill services remains quite strong.

Ladies and gentlemen, due to timing. Our last question will come from Andrew Strelzik with BMO.

When you were talking about the service levels over the last several months, you gave some good kind of regional color about some of the markets that were lagging and kind of how that was progressing. And so I was just hoping to get a sense for the breadth maybe of this fulfillment issue that is ongoing. Is it kind of nationwide? Is it more concentrated in certain areas? Any help around that would be helpful.

Sure. Thanks, Andrew. So again, we go to market in six divisions. We track our DSR rate that we've talked about throughout the last couple of months of our journey. Again, that exits and sits today -- exited Q3, right around the 93-ish or so percent range. Today, it stands at 95%. Generally, there are a couple of divisions performing above that. And then some of the more slow-to-recover areas have been in the Southeast and the Mid-Atlantic, but those are within 93%, 94%. So again, the overall mean is where we want it. Again, we need to continue to improve the volume of those routes, however. We -- as I mentioned in the prepared remarks, we did go through a wave of integration in September because we had more time to prepare for the team for the change of management, the amount of leaders that went to the market to ensure that success that was very successful. We had very little friction at the consumer or customer level. So again, that really gives us the confidence that as we head into the first quarter with our remaining two waves that the time and the preparation activities that we can put into it is quite helpful for the success of that. So again, I think we're just continuing through improving at the volumetric level at this point.

Okay. And is that challenge also kind of regionally concentrated? Or is that more broad-based? I guess that's what I was -- I mean I guess I was trying to get.

Yes, it would be in those same regions that we're continuing to support and improve over time.

It's my pleasure to turn the call back over to Eric Foss for closing remarks.

Thank you. So in closing, let me just emphasize the confidence we have in this business looking forward. I think the combination of our brand leadership position, as well as the increased focus on execution and operational performance can and will deliver a resilient top line algorithm as well as value creation going forward. And so I look forward to sharing our progress in the coming quarters.

Ladies and gentlemen, this concludes today's conference call. We thank you so much for your participation. You may now disconnect.