Primo Water Corporation (NYSE:PRMW ) Q2 2022 Earnings Conference Call August 11, 2022 10:00 AM ET

Jon Kathol - Vice President, Investor Relations

Tom Harrington - Chief Executive Officer

Jay Wells - Chief Financial Officer

Daniel Moore - CJS Securities

Graham Price - Raymond James

Good morning ladies and gentlemen and welcome to the Primo Water Corporation Second Quarter 2022 Earnings Release Conference Call At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, August 11th, 2022.

I would now like to turn the conference call over to Mr. Jon Kathol. Please go ahead.

Welcome to Primo Water Corporation's second quarter 2022 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's website at www.primowatercorp.com and will be available for a 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 second quarter earnings announcement released earlier this morning or on the Investor Relations section of the company's website at www.primowatercorp.com.

I am accompanied by Tom Harrington, Primo's Chief Executive Officer, and Jay Wells, Primo's Chief Financial Officer. As part of this conference call, we have included a deck online at www.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 second quarter and our progress on Primo's strategic initiatives. Then, Jay will review our segment level performance and will discuss our second quarter performance in greater detail and offer our outlook on the third quarter and full year 2022 before handing the call back to Tom to provide a long-term view ahead of Q&A.

With that, I'll now turn the call over to Tom.

Thank you, Jon, and good morning, everyone. I'm pleased to announce on behalf of all Primo associates worldwide, the results of another strong quarter for Primo Water. As we continue to transform and reshape our company, we are a fundamentally stronger and more streamlined business than ever before.

We have made significant strides over the past couple of years to focus on our core competency as a pure-play water company. As a result, we have a healthy balance sheet, a compelling long-term topline growth outlook, and an attractive margin profile.

We are confident in our outlook for 2024, which includes high single-digit organic revenue growth, annualized adjusted EBITDA approaching $525 million, and adjusted EBITDA margins of 21% to 22%. The Primo team is delivering results.

This supports our planned multiyear dividend step-up, which will return an incremental $36 million to shareholders through 2024 in addition to the opportunistic share repurchase program of $100 million announced yesterday. This is on top of our previously announced plans to invest in opportunities that support our growth outlook and EBITDA margin expansion.

Turning to the second quarter. We delivered robust revenue and adjusted EBITDA growth, punctuating a solid first half performance that give us confidence to increase our full year guidance, our full year 2022 guidance on revenue to 12% to 14% growth and adjusted EBITDA to between $415 million and $425 million.

Our business, like others, is facing macro headwinds. Our team is resilient and our commercial execution establishes a firm foundation for ongoing success. Some of these challenges include the translational effect of a significant devaluation of the euro and the unprecedented inflationary environment. We remain focused on what we can control, as we continue to build on our core competencies to achieve our multiyear objectives.

In addition to our strong financial performance in the quarter, we exited our single-use bottle water retail business in North America, HomeStar [ph] inaugural ESG report and exited our operations in Russia. In the second quarter, consolidated revenue increased 9% to $571 million, driven by strong consumer demand, price increases, particularly in our North America water direct business, increased dispenser revenue strategic initiatives with retailers, robust growth of Mountain Valley and continued improvements in the customer experience.

Adjusted EBITDA in the second quarter increased 9% to $108 million, supported by higher volume, increased pricing and effective expense management that helped offset the impact of inflation. Consolidated revenue, excluding the single-use bottle water retail business in North America, and the impact of foreign exchange grew 16%.

In the Global Water Direct business, our customer base increased over 3% to more than $2.3 million for the second quarter. This was an increase of more than 75,000 customers compared to the same quarter last year, through a combination of organic customer additions, customer base acquisitions through our tuck-in strategy, and an adjusted customer retention rate of just over 86% on a trailing 12-month basis.

Our Water Exchange business is also performing well. We are increasing distribution across several large key accounts, expanding our product offering with our alkaline product called Primo Plus, as well as improving the customer experience through increased delivery frequencies. In our Water Refill business, we're beginning to see improved performance. Revenue increased in the quarter, and we're seeing this improvement continue into the third quarter. We believe this progress is a result of improving machine uptime, coupled with new points of distribution.

We are pleased with the performance of our Water Dispenser business this quarter, which sell through volume of more than 225 dispensers. We continue to see growth in volume through increased promotional activity, successful initiatives with retailers and increased penetration with our existing customer base. We are on target to exceed dispenser sell-through of over 1 million units in 2022.

We continue to optimize our digital operations in Europe, with the goal of being the number one e-commerce water dispenser provider across our 21-country footprint.

While selling water dispense is not the key driver of our growth, it is a key enabler of our future growth. Water dispensers are an entry point to the bottled water category that drives our household penetration, where we can capitalize on our recurring razor/razorblade model. The recurring purchase behavior generates organic water revenue and remains one of our key strategic advantages.

Speaking of the dispensers, we continue to monitor the potential for tariff relief, and we believe there is a high likelihood that we'll see a roughly 90% reduction in tariffs bottled water and filtration dispensers. A reduced tariff should enable us to lower the average selling price of dispensers, thus accelerating the sensor sell-through and water connectivity.

In other words, we plan to pass through most of the benefit from lower tariffs to our customers that buy a water dispenser. We believe the reduced prices will result in an increase in household penetration that would provide incremental water sales in the years to come.

A lower tariff would also reduced CapEx on water dispensers that we purchased and rent to Water Direct and Water Filtration customers. Any benefits related to reduced tariffs and refunds are not included in our outlook at this time.

As it relates to the cost environment, Inflation continued at an elevated rate during the second quarter, with increases in fuel, freight and labor costs. To address the higher costs during the quarter, our commercial teams implemented pricing actions in North America in addition to the two price increases taken in the first quarter.

Given what we are seeing today, we believe that these pricing actions are sufficient to cover the higher operating costs and incremental investments in the customer experience. In addition, we have recently implemented price increases in our European operations. The benefit of these actions will be realized later in our third quarter, and the full benefit will be realized in our fourth quarter.

These pricing actions, along with improved service metrics, put us in a better position to offset the unprecedented inflation we are facing and support our decision to increase our revenue and adjusted EBITDA outlook for 2022.

Importantly, as it relates to price elasticity, customer pushback related to the higher pricing has been minimal. We monitor this closely through a combination of metrics including customer growth, call center activity and customer retention, all of which remain healthy.

In addition, we continue to invest in route optimization to improve customer service, enhance the customer experience and better manage costs. We are at our targeted staffing levels and continue to be staffed at more than 98% in route delivery in North America.

We believe the long-term benefits, including any improved customer experience and increased customer retention, outweigh any short-term investments we choose to make. With the macroeconomic uncertainty, we want to highlight the recession resilience of the bottled water industry and our business.

Slide nine in the supplemental deck shows overall bottled water consumption growth and resilience to economic downturns. The chart shows a consistent increase over time in terms of gallons of water sold and per capita consumption increases. Generally, the long-term health of the industry has been unaffected by periods of recession.

As we continue to transform our business, we have shed the overwhelming majority of our commodity-linked exposure, by exiting our former soft drink, juice and coffee businesses as well as a single-use bottle water retail business in North America. We've also increased energy and delivery surcharges to pass-through increased operational and delivery costs.

Finally, I want to reiterate that our strategy is working. We are confident in our ability to deliver our 2022 guidance and achieve our long-term 2024 outlook of high single-digit organic revenue growth with adjusted EBITDA approaching $525 million.

I'll now turn the call over to our CFO, Jay Wells, to review our second quarter financial results in greater detail.

Thank you, Tom, and good morning, everyone. Starting with our second quarter results, consolidated revenue increased 9% to $571 million, compared to $526 million.

Excluding the impact of the exit of our single-use bottle water retail business in North America and foreign exchange, revenue increased by 16%, these gains were largely driven by growth in our Water Direct and Exchange businesses through increased demand in both the residential and B2B channels, pricing and the continued return to work across our footprint.

Consolidated organic revenue, excluding the impact of FX and adjusted for the exit of the single-use bottle water retail business in North America, increased 14% in the quarter. Adjusted EBITDA grew 9% to $108 million, excluding the impact of foreign exchange, adjusted EBITDA grew 11%.

As Tom discussed the effect of price increases, volume growth, and strong demand grow the profitability. During the quarter, we maintained targeted staffing levels and have more than 98% of our route delivery positions filled in North America. We are confident that the incremental investments in our people will enable us to deliver our increased full year 2022 revenue growth target of 12% to 14%.

We also experienced inflationary cost pressures in other areas of our business. The major buckets of higher costs included materials associated with our single-use auto water retail business in North America, which we have now exited fuel, freight and labor. The additional pricing action taken in the second quarter has offset these increased costs.

Before I review our second quarter segment level results, I wanted to mention that we are changing our segment structure to include North America and Europe. The former Rest of World segment is now going to be divided and European water operations will be recorded in the Europe segment, and results of operations for Israel and EMEA as well as our corporate costs will be labeled as, Other.

The new segment classifications are in alignment with U.S. GAAP. In July, we completed the planned exit of our operations in Russia. As a result of the Russia exit and realignment of our segment structure, we performed a fair value assessment during the quarter. As a result, we recorded a pre-tax non-cash impairment charge of $29 million.

Turning to our segment level performance for the quarter, North America revenue increased 10% to $437 million compared to $397 million. Excluding the impact of foreign exchange, and the exit of the single-use bottle water retail business in North America, revenue increased by 17%. The increase was driven by 21% growth in our Water Direct and Exchange businesses, which included 15% price/mix, 5% volume and 1% acquisition growth. Adjusted EBITDA in North America increased 15% to $97 million.

Turning to our Europe segment. Revenue increased by 9% to $70 million. Excluding the impact of foreign exchange, revenue increased by 22%. The increase was driven by our Water Direct business with growth in our residential customer base and B2B volume as Europeans return to work. Adjusted EBITDA in the Europe segment increased 8% to $12 million as the devaluation of the euro to the dollar more than offset the benefit of higher revenues. Excluding the impact of foreign exchange, adjusted EBITDA increased by 3%.

As Tom mentioned, we have recently implemented price increases in our European operations to mitigate the increased cost of inflation in these markets. The benefit of these actions will start to be recognized later in our third quarter, and the full benefit will be recognized in our fourth quarter.

As I mentioned, we have officially completed the exit of the single-use bottle water retail business in North America. In 2021, these products accounted for revenue of approximately $142 million. Through the first half of 2022, we recorded revenue of approximately $41 million as we efficiently wound down the business.

Turning to our Q3 and full year outlook. Revenue and adjusted EBITDA is off to a strong start through the first half of the year and the beginning of Q3 with strong customer demand and price increases to offset cost increases in fuel, freight and labor. We're also confident in our ability to offset the completed exit of the business in Russia, which will create a one-time headwind as we lap $14 million of revenue and $3 million of adjusted EBITDA from this business on an annualized basis.

Based on the information we have available to us as of today, we expect -- from continuing operations for the third quarter to be between $570 million and $590 million, and that our third quarter adjusted EBITDA will be in the range of $115 million to $120 million.

For the full year 2022, overall revenue growth is projected to be 12% to 14% adjusted for the exit of the single-use bottle water retail business in North America. We expect full year 2022 adjusted EBITDA to be between $415 million and $425 million. For the year, we expect around $10 million of cash taxes, $50 million of interest expense, as well as capital expenditures of approximately $200 million.

The capital expenditure forecast includes incremental spending as we discussed during our Investor Day last November, which is being used to support our growth outlook and EBITDA margin expansion. In addition to earnings generated from normal course of business, we are exploring an opportunity to sell a few parcels of real estate in California that have seen significant appreciation in value. Preliminary estimates indicate a combined selling price of approximately $125 million. Net proceeds will be used to fund share repurchases.

Turning to capital deployment. As of yesterday, our Board of Directors authorized, a quarterly dividend of $0.07 per common share. Our growth outlook and increased free cash flow generation can fund our growth as well as an increase in our annual dividend. Our path to a multi-year dividend -- an increase in our dividend per share by $0.01 in 2022, another in 2023 and another in 2024. The increase in dividend will return over $6 million incremental dollars to shareholders in 2022.

Additionally, our Board of Directors authorized a new $100 million share repurchase program, which expires on August 14, 2023. The authorization of 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 fundamental value for our shareholders.

Other aspects of capital deployment include continuing our tuck-in M&A. For 2022, we continue to target $40 million to $60 million of tuck-in remains on focus on executing our robust pipeline of tuck-in opportunities. Our long-term organic growth outlook has not changed. We remain confident in our outlook for 2024 as we forecast high single-digit percentage organic revenue growth, targeted adjusted EBITDA approaching $525 million. Adjusted EBITDA margins of 21% to 22%; adjusted earnings per share of $1.10 to $1.20 per share, net leverage of less than 2.5 times and return on invested capital greater than 12%.

I will now turn the call back to Tom.

Thanks, Jay. Looking ahead, as we continue executing our differentiated Water Your Way platform and focusing on a few key priorities, we will leverage our pure-play water model to drive revenue growth of 12% to 14% in 2022, adjusting for the exit of the single-use bottled water retail business in North America. We will deliver organic revenue growth in a range of 10% to 12%.

We will continue to execute our razor-razorblade model with growth in the number of dispensers sold, driving top line and earnings growth through the sales of water products. We are more than pleased with the first half of the year's results and are excited about our future. With so much uncertainty in the market, we think the Primo Water investment is compelling. We are the only public pure-play consumer water platform with leading national and local brands both North America and Europe with a predictable recession-resistant revenue base an attractive high single-digit long-term organic growth targets supported by multiple favorable tailwinds, such as increased consumer attention to health and wellness and aging water infrastructure.

I want to reiterate, we are a fundamentally stronger and more streamlined business than ever before. We've made significant strides over the past couple of years, to focus on our core competency as a pure-play water company. As a result, we have a healthy balance sheet, a compelling long-term top line growth outlook and an attractive margin profile. We are confident in our outlook for 2024, which includes high single-digit organic revenue growth, annualized adjusted EBITDA approaching $525 million, and adjusted EBITDA margins of 21% to 22%. The -- is delivering results.

Once again, I'd like to thank the Primo Water associates across the business for their tireless efforts to serve our customers.

With that, I'd like to 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. If you have additional questions, please reenter the queue. Thank you. Operator, please open the line for questions?

Thank you. Ladies and gentlemen, we will now begin the question-and-answer. [Operator Instructions] One moment for your first question. Your first question comes from Daniel Moore with CJS Securities. Please go ahead.

Good morning, Tom. Good morning, Jay.

So I'll start with the updated guide. Just maybe talk about the volume growth assumptions underpinning your updated revenue guide. And then qualitatively, just the confidence in the level of the updated annual outlook, what are you seeing so far in Q3? Any clouds at all on the horizon as it relates to the consumer? Just a little bit more detailed color there would be great.

Yes. I'll take the qualitative and move the quantitative to Jay. Obviously, a very strong Q2, right? So customer growth, customer retention, volume growth, pricing elasticity, customer base is steady. Teams are executing, we're managing expenses. We are seeing that same performance in Q3, which only further builds my confidence that we'll deliver on this guide as well as, frankly, the 2024 outlook. So everything is going according to what we would expect it continues through the month of July, which really puts us in a good place to deliver on our commitments.

Yes. I think, Tom said it well. You look at what I called out in my prepared remarks that --our water direct business in North America is driving above 21% growth, 15% price/mix, 5% in volume – organic volume and 1% acquisition. We have continued to see that performance in this part of our business into Q3.

On top of that Tom mentioned, our refill business is showing good growth, and it has also continued in the quarter. As we're seeing Ocean Freight goes down $225,000 of dispenser sales in the quarter or sell-through in the quarter, and we're seeing growth in that area. So we'll sell more expenses this year than we sold last year, which, as Tom said, is key to driving our water growth. So really are continuing into the third quarter, very similar to what we reported in Q2, if not a little better.

Perfect. That's very helpful. Any more color on the commercial B2B volume recovery, particularly in Europe and the momentum you're seeing there?

Yes. So we're seeing pretty consistent growth across the board. I think Jay's got some more detailed color on how it's breaking down by segment.

I mean, you look at both in North America and in Europe, we are seeing good return that you look at B2B volume over in Europe. Our revenue was at 8%. Our pricing was relatively flat so that was mostly volume driven. Residential, which we continue to add good residential is that revenue was up 14%. So that's very good. If you look at – in North America, I talked about our growth, our B2B revenue was up 23% year-over-year with our residential up 14%. And – so as we talked about, we are seeing things normalize on the B2B side, while continuing to grow our residential side. As we said, we don't think, it's a one-for-one swap, if things are turned to normal, and our numbers are showing it.

So both channels on both sides of the Atlantic enjoying good volume growth and pricing growth.

Excellent. I'll sneak one more in and jump back in queue. But just timing questions. One, on timing of potential benefits of the tariffs? And then two, at some nice property you've got there in California, any sense of timing on when that – those sale or sales might be completed? Thanks.

I'll take the tariff, and I'll give the real estate to, Jay. We're cautiously optimistic that it will move from the 25%, frankly, down to 2.7% as alarm as opposed to tariff that could happen any day. We're not forecasting it. So it will be upside to us. And then as we referenced in our comments, we're going to convert that into the sale of more dispensers to fuel our future growth.

And lower CapEx than what we –

The flip side is we'll also get some reduced CapEx investment for the ones that we rent. So – we're optimistic, but until it's signed and sealed Dan, we're not counting on it. We obviously made great deal of attention with and are, in fact, cautiously up.

And on the real estate sale, we have one large parcel under contracts will hopefully close and plan to close this quarter with the remainder being probably later in the year, beginning of next.

Your next question comes from Andrea Teixeira with JPMorgan. Please go ahead.

Good morning. How are you?

So I have a question and a – good, good. I have a question and a follow-up, please. On the guidance, you beat EBITDA by $3 million. And I guess, you raised by $5 million – you raised top line almost 70 million sort of zero and it be second quarter by around $20 million. So I'm just trying to see, how it's not flowing through. Is that because of the incremental profitability that you may see headwinds with the euro depreciation or maybe you were just baking in some conservatism into the estimate in the back end? And then I have a follow-up on Europe, please.

There's multiple factors that we're dealing with. Number one, there is inflation. So part of our price increase, as we talked about is to offset increased cost of fuel freight and labor. So that's number one. Number two, the euro to the dollar has significantly weakened. So we have not changed our full year guidance on EBITDA as we have seen the weakening of the euro. We've also exited the Russia business, which as I said early on that, it's $3 million of EBITDA that we were lapping. So we are lapping a lot of headwinds that have come up since the beginning of the year, and up in our guidance. So that's really how you better deal it.

That's fair. And then on Europe, I guess the one thing is the exit rate, of course, you're very – you're very positive with the answers to the first question, right, the numbers speak for themselves. But I'm just thinking, as you exited the quarter with energy prices the way they are and potentially you're lapping the easy cost at some point, are you seeing any signs of elevated churn? Any deceleration on new customer adds or anything we should be aware of, or maybe be just calm about it?

Yeah. The way I think about it, despite put Russia to this side, as the Ukraine is real. The reality is we're still recovering on our commercial business in Europe, it's still on its way back. So we would think that, that's frankly, a tailwind for us as more people go back to work in B2B or commercial segment in Europe. We're seeing that manifest itself with good revenue and volume growth and reference largely volume growth. And then we continue to generate new customers on the residential side. So clearly, the tailwind of high-quality drinking water matters on both sides of the Atlantic, and we're beginning to honor that residential opportunity, and we would expect that, that would continue.

Keep in mind, our customers over in Europe are predominantly contractual base customers, unlike we have over here in North America. So it has taken us more time to put the pricing through to offset the cost. So our results for Q2 really have no price to offset the cost increases as we're seeing on just 3% EBITDA growth, but we have taken the pricing through at this point. So we will have the additional benefit of the pricing to offset the cost inflation in the back half of the year.

And the only thing I would add that a small question that was inside your question was customer retention in Europe is equal to or better than it has been in the past. So we're not seeing any changes in the churn that give us any worry.

That's super helpful. Thank you. I will cut it off and then I'm going to come back for more.

Your next question comes from Kevin Grundy with Jefferies. Please go ahead.

Great. Thanks. Hey, good morning, everyone.

Hey, good morning, Tom and Jay. So a follow-up on the sales of land and thoughts on buybacks in general. So, number one, just the ability to monetize any other holdings other than what you have outlined I think, would be of interest. And then number two, maybe just help me a bit with the recently announced $100 million share repurchase program from the Board. that would seemingly be financed largely from the real estate proceeds sort of setting aside the opportunity to deploy free cash flow post the dividend, post tuck-in M&A. Maybe just help me with that. Is there an opportunity above and beyond what the Board has already outlined?

Yeah. Let me -- I'll start with your property question, and I'll give the second part of your question to Jay. We own roughly in North America, 72 locations, right? So this is a small number that we focused on in California like four to be specific. And part of our team is working on a view that says it is -- yes, it's about taking advantage of its meaningful appreciation of these properties. But we're also looking at where should our distribution centers for the future be to maximize or minimize depending on how you look a lot, right, is get the logistics, minimize our costs and have distribution centers that better match our current and future customer base. So the work that we started in California, we will extend across the US over time. It's a thorough, thoughtful process that gets to what's the right footprint for the next five or seven years, if you will. So, that's in real time. California is the first piece and the team will now move on to other markets.

And I'm not sure about your second half, but we saw an opportunity. We didn't have a share repurchase program. And at this time, we believe our stock is at a very good value. I saw the inflow of cash starting in this quarter that we have available. We talked to the Board and made the decision to best use of that inflow of proceeds from the sale of land is to do share buybacks and that's why we got approval to do so this quarter.

And importantly, we'll continue with our other uses of capital. So, it's not instead of. We're going to take advantage of this logistic change, right, manage better management of our real estate portfolio, which is what this is, but we're going to continue to make the investments we articulated back in November of last year at our Investor Day about how we grow the topline high single-digit and get that EBITDA margin expansion that we promised.

Very good. I'll follow-up offline. Thank you guys. Congrats again on the quarter.

Your next question comes from Derek Lessard with TD Securities. Please go ahead.

Good morning. This is Sharon calling in for Derek. And thanks for taking my questions. So, maybe just a follow-up on Europe. I was just curious if you have seen any pressures on volume -- or in supply chain, particularly in countries that maybe neighboring Ukraine?

If you think about our footprint, plants are in local countries. And we didn't have any meaningful raw materials sourced from the Ukraine so that we've avoided that with no dependence on that market. So other than ocean freight and elevated -- the impact of inflation, we're in good stead in terms of raw materials and our ability to supply our customers.

No. And if you look at Europe, it's a little bit different than North America. The fuel costs over there has a significant amount of excise tax in it. So, as fuel costs go up there, it's actually a lower percentage of cost increase than it is here relative. So, that's really the main thing that could have been affected by what's going on in Ukraine. But it -- actually because of the significant amount of excise tax they put on their fuel, it's actually a smaller percentage than you think effect on our business. And as I said, we've taken price to cover that now and will benefit us in the back half of the year.

Okay. Thanks so much for that. And then maybe as a follow-up on capital allocation. Just curious how you think about balancing the return of cash to shareholders and your commitment on progress towards lowering our leverage?

Yes. So, there's two parts to that question. So, again, this is an opportunistic share repurchase based on two opportunities. What we believe is a meaningful the lower stock price today. So, to do a share repurchase, one based on that.

And secondly, because of our work on our real estate portfolio, which creates the ability to do this share repurchase. We'll continue to invest on the incremental capital to drive growth and support the high single-digit revenue growth we've committed through 2024 and also invest on other ways to enhance our EBITDA margins. So it's -- again, it's not instead of, it's in addition to based on our ability to monetize some of these valuable assets.

So we are -- as Tom said, we are not changing the plan we had at the beginning of the year to deleverage under our plans deleveraging, we were just using this incremental proceeds from the sale of our land, and we believe based on where our share price currently is, that was the best deployment of the incremental cash that we're getting from the land sales.

Okay. That's very helpful. Thank you. Thanks so much for taking my question.

Your next question comes from John Zamparo with CIBC. Please go ahead.

I wanted to ask about net customer growth. I think you mentioned the number year-over-year in Q2 was $75,000. I think that was $100,000 in Q1. So I was wondering if you could share what it was quarter-to-quarter. And is there typically any seasonality on net customer adds? I know you have a few different initiatives on that. So just wondering if you could add some color there.

Yes. There is certainly seasonality. So Q2 and Q3 would be higher quarters, historically, per customer adds so there is real seasonality to that. Obviously, there's the add side and that is all around customer retention. So we continue to make progress and investments on the customer experience, whether it's digital, whether it's what we call on time and full, which is are we delivering on time with everything you asked for us. So those initiatives are in place and will impact net growth historically or as we go for it. Right at my fingertips, John, I don't have the movement from Q1 to Q2, I can get back to you, but I know it's sequentially higher. I just can't give you an exact sequential growth at the top of my head, sorry, John.

Yes. That's okay. I appreciate the color there. And then as my follow-up, I wonder if we could get an update on your plans for Primo Fresh or on the go, how close you are launching this service in the US and anything you can share as you're developing this program.

Yes. So I think on the last quarter, we talked about finding the supply chain and the appropriate manufacturing footprint. We've made good progress there. I would expect sometime in Q3 that we'll have units in market, I would call it test, right? So this is units, frankly, both in Europe and North America on the go solution that we want -- this is the opportunity to make sure that it does exactly what it does mechanically. And from a tech perspective, -- and then once we have comfort that the solution does what we need it to do, then we'll begin to scale it.

So we've made progress. We'll plug some units in before Q3 is over. We remain bullish about where that can bring us. But again, I got to get the units in the field to really understand the opportunity here. But we're pretty -- we're excited about and happy that we can execute some in Q3.

Okay. Understood. Thank you very much.

[Operator Instructions] Your next question comes from Graham Price with Raymond James. Please go ahead.

Hi. Good morning. Thanks for taking my question. First one, maybe on the regulatory front. Now that California is voted to start regulating single-use plastics, I was wondering if do you anticipate any boost to demand from that market or just general read-through from that?

Yes. We would expect that we’ll see more of a tailwind for us because people look for solutions. We have the appropriate one in terms of the ability to refill, reuse and recycle hours. And frankly, this legislation supports our decision to have exited the North American Primo Water retail business, right? So this just further supports our strategy to move to more environmentally friendly and sustainable solutions and we think that becomes a tailwind for us over time.

Got it. Got it. Good to hear. And then for my follow-up, I know all we're seeing more and more businesses looking into or actually purchasing electric trucks would seem like a great use case for your business as well. Just curious if you're looking at that and maybe just more broadly, kind of trends you're seeing on fuel costs.

Yes, so we continue to executive our conversion of our largely North American fleet from diesel to propane. And it certainly has a positive impact on greenhouse gas emissions, but also a significant reduction in Nitro [ph]. So that's a positive. We'll continue that action. We haven't found an economical electric solution yet for the larger route truck side. We continue to look. We're actively in that space, but the capital cost so far is at least 3x.

What we are, though, however, working through is how do we convert the smaller assets. So think about service fans as an example, both in the US and North America and in Europe, about how we can divert those to EV. And that's in our, I call it, early-stage planning, but that would be our intent to begin that migration.

And then fuel cost is, it depends on where you are, right? So it has not moved down as much as unlevered if you look at it. And the good news is our energy surcharge just goes up and down, so it covers that cost. So we're a bit insulated from that, but I'd prefer that it went down for the record. But we have insulated ourselves with what we do with our energy surcharge and frankly, delivery costs, delivery fees, excuse me.

Got it. Makes sense. Thank you very much.

Your next question is a follow-up from Andrea Teixeira with JPMorgan. Please go ahead.

Thank you for taking my follow-up. So, I was just hoping if you can elaborate a little bit more on the initiatives that drove the more water sales and connectivity. I know you have the app and you also have some resumable coupons on coolers. And I guess the coolers numbers that you gave is also encouraging. So, I was wondering if you can talk about marketing dollars and how you are seeing this is an opportunity, and also kind of the promotional environment going forward. And -- yeah -- go ahead please. Thank you.

I'm sorry, Andrea. Look, we're confident where we're going to grow our Dispenser business. We'll sell over one million units this year. What we've begun to now execute, as an example, you could walk in some retailers and you'll see the coupon on the box in many of the retailers that sell our dispensers. And that is we've begun to see some increases in connectivity. We have not conquered the connectivity curve yet. When we talk about building out our digital plan, our investments, it is one of the areas that we all working on to meet this to do more work on. It’s the joy that connectivity from where it is today to a mid-term tomorrow, why? Because we know those words of the senses convert into the razor-razorblade, enjoy our future labor future growth. So, it’s core to our future marketing plan and we’ve got a work out all those details, we may progress. We haven’t made enough or there is more to do, let’s we better rest.

And insight that the way and it’s quite encouraging to hear that in terms of when you come back to the great financial crisis or the last recession and hopefully we’re not going to get into that point, but just to give investors some comfort, should we see – can you inform us how it happened and what was the impact, at least at that point in terms of your engagement and attrition or anything that you may help us gauge.

Yeah. I’ll give you detail and then I’ll let Jay elaborate. One of the key actions we took out of the recession that had back in the way 2000, we implemented the energy surcharge. We reap the benefit of that today. And I was here then. So before that recession, diesel was $2.50 a gallon. I went to -- I remember high of 4.56, which is actually not the high today.

But we put the energy surcharge in place which insulates us from that spike in the fuel and our charge goes up and down. So that was a key learning that makes it different because back then, I had no reach right? we didn’t take the action that was a key learning coming out. So that's a key change in terms of firm.

The other thing we did is, look, we also tightened our credit policy, right? It matters. And we've had that same credit policy in place. So that's an important number in our business. It's a cost and we mitigated that by the changes we made a decade ago, frankly, that has worked to insulate us from downturns in terms of people who forget to pay their bill.

Now if you want to look at the numbers, you look at our US business from 2007 to 2010, so the heart of the recession. Our direct business, the revenue went down 3% over that period of time. If you look at purely organic, it went down 4%. So, it was benefited by acquisitions. But more importantly, when you look at coming out of the recession and you look at 2010 to 2013, our revenue CAGR for growth was 7% and again 4% organically coming out.

So we did very well done and even better coming out of the last recession. So that's why we say, we are recession resilient or resistant because, yes, we are affected, but it's not a material effect. And we do rebound quickly. And as the chart on, I think, was slide 9 of our deck, it really shows over all. The bottled water industry is resilient during these background economic events.

I'll add on – I would pile on, if you will. We had this thing called the pandemic and I think this company exhibited the highly variable nature of our cost structure and we acted in a month, right? So hopefully, investors have the confidence that we have the ability and the agility to adjust in real time to these challenges when we're faced with them. So, we have a tale of what happened back then and we have more recent experiences. The actions of companies talk during the pandemic.

Super helpful. Thank you and congrats again.

There are no further questions at this time. Please proceed.

This concludes Primo's second quarter results call. Thank you all for attending.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.