We intend to provide updated 2024 guidance for the North American-focused version of Primo Water in February during our normal earnings call related to Q4 and fiscal 2023 results. I will now turn the call back to Tom.
Tom Harrington : Thanks, David. Our strong performance reinforces our confidence in our ability to deliver sustained growth, supported by strong revenue growth in our Water Direct, Exchange, Refill, and Filtration businesses, continued execution of our tuck-in M&A strategy, the improved performance of our operations, and adjusted EBITDA margins expansion. We are making solid progress and have the right plan and the right team in place to succeed. We are one of the only pure play water platforms with leading national and local brands, and we benefit from a large and growing revenue base. Our long-term growth targets are driven by the connectivity of water dispensers to our water solutions, as well as consumer tailwinds such as the focus on health and wellness and concerns about the aging water infrastructure.
We have a healthy balance sheet, a compelling long-term growth outlook, and an attractive margin profile. We are confident that share owners will be pleased with the results of the transaction announced earlier today as we create value by driving organic growth, reducing leverage, funding M&A, and supporting the return of capital. As an update, earlier this summer I announced my retirement at the end of 2023, and the board initiated a search for my successor. The board, with the support of an International search firm, has met with a number of highly qualified candidates and is in the final stages of the process, and we therefore anticipate announcing a new CEO later this quarter. As you can see from our results, the business continues to perform at a high level with strong results and is clearly well positioned for the future.
It has been an amazing personal journey over the last two decades, including the last five years as the CEO of the company. I’m proud of what we have accomplished. The transformation of the company from a private label juice, coffee, and soft drink manufacturer into a pure play water company has proven to be the right move for our customers, associates, and share owners. All this accomplished whilst managing through a global pandemic, record high inflation, two major wars, and a significant board refresh. The current transaction to sell most of our International businesses at a premium valuation will enable the company to become a more focused North American water business. I will remain a supporter of the company and will be cheering them on as an investor, fan, and the customer.
I’d also like to thank you, the investors and analysts of the financial community. I’m hopeful that the marketplace recognizes the value of our model and our consistent execution and rewards us accordingly. Our leadership team and our associates across the business are amazing, and I thank them for their tireless efforts and support in our mission of serving our customers with professionalism. They truly are the best in the business. With that, I’ll turn the call back over to Jon for Q&A.
Jon Kathol: 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.
Q – Derek Lessard: Hi, good morning, everybody. I just wanted to —
Tom Harrington: Good morning, Derek.
Derek Lessard: Good morning, Tom. I just wanted to start off maybe with a little congratulations, Tom, on your retirement. I think you’ve done a remarkable job at the helm of this organization through really challenging times, to say the least. So wishing you nothing but the best for the second act, whatever that may be.
Tom Harrington: Thanks, Derek. I appreciate that very much.
Derek Lessard: And of course, you’re going out with a bang. I expected nothing less, so congratulations [indiscernible]. Just had a few questions, maybe it’s more for David, but on the pro forma business, it’s mostly really all on Slide 12. Just wondering if maybe you could clarify the step down in EBITDA from $470 million to $375 million, I think the Europe or the legacy or the business that you’re selling in Europe is close to $60 million of that. So what’s the missing piece there?
David Hass : Yeah, thanks, Derek. So the purpose of that was to give everyone a foundation of who and what we call newco will be on a ’23-guide basis. So as you think about the $470 million representing the midpoint of our guidance, $375 million would include the PWNA component and the corporate component. But the reality is there’s about $416 million of equivalent midpoint guide EBITDA in the business that includes PWNA, corp, and the assets that will be part of secondary transactions across 2024. The other thing the $375 million does not yet contemplate would be optimization gains as we look to right size the business, i.e. reduce some of the overhead in the business for just the domestic business. And so obviously on a pro forma basis that $375 million equivalent to the free cash flow chart has about $20 million of upside.
And this is all before we give guidance that includes both organic and inorganic growth sliding across 2024. And so I think that’s really the clarity we wanted to provide there. Appreciate the question.
Derek Lessard: Okay. That’s helpful. And I guess maybe you just touched on it too on the same slide looking at that free cash flow. You kind of walk it down to $140 million and then talk it back up to $160 million. Just to remind, I think you did allude to it on the call, but maybe just what you’re expecting to drive that incremental $20 million?
David Hass : Correct. Yeah. So again, $160 million would be the guide we just took up with that $10 million increase for the enterprise for 2023. Inside that $160 million, $140 million would be the adjusted free cash flow generative capacity of the PWNA business that we will have as a go forward. The $20 million represents the pro forma view of us again right sizing with 100% flow through of that benefit. Basically saying that when we’re done on a run basis, there will be zero slippage in free cash flow for what we consider the newco business. Now that’ll take across calendar ’24 to develop. And again, similarly to the comments in the prepared remarks, that is prior to any organic or inorganically acquired free cash flow that comes across 2024.
