Katie Turner - MD, ICR Matthew Sheehan - President, CEO & Director David Mills - CFO, Secretary & Assistant Treasurer

Kara Anderson - B. Riley FBR, Inc.

Mark Argento - Lake Street Capital Markets Amit Sharma - BMO Capital Markets Michael Grondahl - Northland Capital Markets Michael Petusky - Barrington Research Associates

Thank you. Good afternoon, and welcome to Primo Water's First Quarter 2018 Earnings Conference Call.

On the call with me today are Matt Sheehan, Chief Executive Officer; and David Mills, Chief Financial Officer. By now everyone should have access to the release that went out this afternoon at approximately 4:05 p.m.

Eastern Time. If you've not received today's press release, it is available on the Investor Relations portion of Primo Water's website at www.primowater.com.

This call is being webcast and a replay will be available on the company's website. Before we begin, we'd like to remind everyone that their prepared remarks contain forward-looking statements, including financial guidance, and management may make additional forward-looking statements in response to your questions.

The forward-looking statements should be considered within the meaning of the applicable securities laws and regulations regarding such statements. Many factors could cause actual results to differ materially from those forward-looking statements, and we can give no assurance of their accuracy, and Primo Water assumes no obligation to update them.

We encourage participants to carefully read the section on forward-looking statements included in the press release issued this afternoon and in all documents that Primo Water filed with the SEC. And now, I'd like to turn the call over to Primo Water's CEO, Matt Sheehan.

Thanks, Katie. Good afternoon, everyone, and thank you for joining us to review our first quarter and update on our business.

I'm excited to review our quarterly results and discuss the momentum already underway in 2018. Q1 was an impressive quarter for the business and for our team.

We posted strong results, but I am most excited that our key strategies and rigorous testing protocol are driving outcomes. That testing, on top of a very loyal customer, a healthy core business and significant industry tailwinds gives us confidence in our future.

Always fueling our focus is our purpose of inspiring healthier lives through better water. I'd like to thank our team, our retailers and our partners for their continued loyalty and support of our purpose.

I will start today with an overview of the continued challenges and concerns consumers face with tap water quality. We believe these quality issues have and will continue to provide a tailwind to our business.

I'll follow that with a high-level review of our results and provide you an update on our key strategies before turning the call over to David. He'll walk you through the detailed financial results of the quarter as well as provide our guidance.

To begin, we believe Primo is uniquely positioned to provide families a safe alternative to alleviate their increasing concerns over tap water quality across the U.S. and Canada.

Each week, households continue to face hundreds of boil water alerts and major U.S. cities continue to disclose issues with their municipal water systems.

Here are just a couple of examples. Within the last few weeks, the Chicago Tribune concluded a major investigation of the city's lead exposure, finding that 70% of the homes tested confirmed the presence of lead.

Of those homes, three of every 10 sampled had lead levels that exceeded the maximum allowable limits by the FDA. Within the past few days, residents of Meriden, Connecticut, received a letter from their city explaining the elevated levels of chlorine that were detected last winter.

As you can imagine, this did not sit well with the residents to receive this letter over four months after it was detected. These cities are dramatically different in their populations and they represent different regions in the country, pointing to the heightened consumer concern that remains regarding tap water quality.

The combination of these headlines and the consistent findings that Bulk Water in the home increases consumption of water by 25% to 30%. We'll continue to increase awareness and consideration for consumers to choose Primo.

Bulk Water is no longer exclusively linked to the shift away from sugary beverages, but now also linked to a shift away from tap water. All in, Primo remains very well positioned to continually grow.

With that said, I'll now shift to our strong quarterly performance. I'm pleased to report that for the first quarter, we exceeded our financial guidance for both sales and adjusted EBITDA.

For the first quarter, sales increased over 21% to $73.7 million and adjusted EBITDA increased nearly 27% to $12.4 million. With the momentum of Q1 and the progress against our key strategies, we felt confident to raise our full year sales guidance for 2018, which we'll cover in a bit.

A few notable insights into the results. First, as discussed on our last call, we believe that our Black Friday program will generate long-term momentum for our water business, after creating new water households in the fourth quarter.

Based on those Q4 dispenser purchases and continued sell-through in the first quarter, U.S. Exchange posted its 24th consecutive quarter of same-store unit growth over 6%, with an acceleration in the first quarter to 9.5%.

This performance is not just a continuation. It represents a step change in our growth, with an increase of over 3 percentage points over 2017 unit trends.

With the success of Black Friday, we are now working on similar promotional activities throughout the year and across more retailers to accelerate water growth. Second, our dispenser sell-through in Q1 grew 29% compared to the prior period and set an all-time record of 185,000 units.

This is specifically notable as the first quarter is typically a slower dispenser of sell-through quarter. Third, we are well underway with our pricing adjustment on our outdoor coin-based machines, which started in earnest late in the first quarter.

With that timing in mind, it did not have a meaningful impact on the Q1 results. More on our pricing strategy, shortly.

With those highlights in mind, let's slide into the initiatives that we believe are changing the growth trajectory of our business. As we have said in the past, all of our initiatives are focused on five key strategies: first, grow household penetration; second, improve connectivity of our dispensers and our water; third, increase same-store sales; fourth, drive unit economics; and fifth, foster highly-engaged teams.

It's important to keep in mind that our disciplined testing protocol helps us deliver results across these strategies. I'll refer to tests in various stages throughout the call.

First, let's look at household penetration on connectivity, our first two in highly-related strategies. We are the market leader in dispenser sales at retail and are enhancing our focus on both growing our sell-through of dispensers while increasing the connectivity with our water.

By packaging these strategies, we believe we can create a higher growth rate in our high-margin water businesses. Last quarter, we discussed the success of Walmart Black Friday promotion, which included three main ingredients: reduced dispenser retail pricing; increased awareness; and lastly, initiatives to drive increased connectivity.

This combination helps to drive overall awareness and attractiveness of our offering. While Black Friday was a success in '17, there was very little water benefit last year.

In Q1, however, consumer connectivity was confirmed, helping drive a same-store unit growth of 9.5%. This was an expansion from the 2017 rate of 6.2%.

The 9.5% same-store unit growth rate is even more impressive, when you consider that this occurred with a significantly higher base of units. Based on the success of this promotional strategy, we are focused on opportunities throughout the year.

For example, we are executing a similar Memorial Day offer with Lowe's Home Improvement. While Lowe's does not offer the same scale of Walmart, we believe it will be a very successful program.

An additional bright spot in the quarter is our recent e-commerce performance. Dot-com sell-through of dispensers increased 73% versus the prior year period.

While still an overall small part of our business, these sales are important because Primo has the ability to fully communicate our razor-razorblade offer on our product pages to improve descriptions, pictures and videos. While consumers are in their consideration phase, Primo has a unique ability to talk about the quality of our dispensers along with our convenient water availability at nearby retailers.

We also have the ability to communicate a discounted or free water offer that is included with many of our dispensers. An opportunity available because of our unique razor-razorblade strategy.

As an example, we tested free shipping on our website, which had a significant positive impact on our own primowater.com sales. Lastly in Q1, Primo began selling three new products now available in select retail locations and online.

As discussed previously, our Pet Dispenser, electronic pump and hTRIO with K-cup beverage technology are now available for purchase. Both the Pet and hTRIO dispensers helped drive significantly higher water consumption versus a traditional dispenser.

In addition, the E Pump provides a portable and electronic dispensing option for families on-the-go, adding convenience and a long life battery for under $30. And bringing this technology to market, we are testing many ways to promote and talk about these products online, with our own social media channels, bloggers and even efficacy programs, including a leading pet adoption organization.

Moving on from our first two strategies, we have a lot of updates to share as we work to drive increased same-store sales through our testing protocol. We recently completed the phase - Phase 3 scaled rollout of our improved exchange signage at Walmart that we refer to as CD joints.

This signage helps communicate a few important details: clear pricing visibility; graphical connection to dispensers; and most importantly, highlighting the challenges of tap water through compelling visuals. We are excited to see that the results continue to be positive at scale, helping drive accelerated growth rates.

We will continue to rollout the signage at additional retailers in both Exchange and Refill. In addition, we are beginning the Phase 3 scaled rollout of our indoor refill video screen test, first starting with Walmart.

We know the Refill category has a significant opportunity for growth. These video screens better explain our purification process, increase the user-friendliness and better communicate the value proposition of Refill.

Lastly, on same-store unit growth, we began to rollout - we began the rollout of our pricing increase to our coin-based locations late in Q1. As a reminder, we learned in testing and continue to expect to see volume declines as a result of the price increase, but we continue to believe that this will be financially accretive.

It is important to note that pricing is not a one-time decision, but instead, an ongoing optimization process. In a Phase 1 or test grouping, we have had several marketing tests in process that we hope to learn from during Q2.

We recently launched a small-market media test in Amarillo, Texas, using all forms of traditional media to learn about its effectiveness in targeting tap water users. Additionally, we have engaged with a successful word-of-mouth marketing agency to help drive key influencers in select geographic markets.

This engagement includes sending a brand ambassador into four targeted cities. These ambassadors will help build meaningful connections with focus groups like new moms, pet owners, et cetera, all helping influence key consumers, who will then naturally amplify the messaging and benefits of Primo Water.

Lastly, we intend to launch a video screen test on our outdoor coin-based machines. Similar to our indoor units, these screens will communicate the benefits, value and Refill's ease-of-use.

Moving to our last strategy of driving unit economics, there's a lot of effort being put towards decreasing our cost to serve, predominantly in Refill. We are investing in technology that we believe will not only make us more efficient but will improve the consumer experience.

We are in process of a few phased scaled rollouts of technology, including Omnitracs' Roadnet routing software to our entire refill operating network. We anticipate this will help provide additional efficiencies in our service technician network, just one year into our integration.

In a Phase 2 test group, our learn phase, we are expanding our electronic payment testing in Refill, to further understand the positive revenue and supply chain impact compared to our current coin and bill only refill machines. We expect to gain visibility around the amount of incremental volume and use the real-time information received to improve service and machine uptime.

As you can see, our team is working hard to drive revenue growth and efficiencies across our key strategies. We believe the current progress to date showcases our challenger mindset and an unwavering dedication to a greater growth trajectory.

Before turning over to David, I would like to address two questions that we often receive regarding our strategy: M&A and International expansion. As we have previously stated, we believe additional acquisitions are part of our growth strategy, and we continue to look for opportunistic deals with compelling post-integration multiples.

Moving to the second question, we have a market-leading and successful operation in Canada across all three lines of our business. Between this and our dominant position in the United States, we often receive calls regarding opportunities in other countries.

We continue to assess which additional international markets make the most sense to leverage our scale and brand recognition. Any international expansion would likely include a partnership model with a local operator under a licensing arrangement.

We believe this model allows us to take advantage of local operating and cultural knowledge while reducing our risk and allowing us to remain focused on a large opportunity in the U.S. With that, I'll turn the call over to David to cover our financial results.

Thanks, Matt, and good afternoon, everyone. Today I'll review our financial results for the first quarter, and then discuss our outlook for the second quarter and full year of 2018.

Following my review, I will turn the call back over to Matt for closing remarks. To assist investors in understanding our operating results, we do provide adjusted EBITDA, which is a non-GAAP financial measure.

A reconciliation is included in our earnings press release issued this afternoon and available on our website. Turning to our results for the quarter, as Matt mentioned, we had a great quarter, exceeding our expectations for both sales and adjusted EBITDA.

On the top line, sales for the first quarter grew over 21% to $73.7 million, led by a record quarter in Dispensers and an acceleration in U.S. Exchange same-store unit growth.

Looking at the segments, Dispenser sales for the quarter were up over 82% to $13.9 million. The increase is a result of retailers replenishing inventory after the strong Black Friday promotion as well as retailers preparing for promotions around Memorial Day, which we believe pulled forward some sales from the second quarter.

For the second quarter in a row, we saw record consumer demand of dispensers as sell-through was 185,000 units. We believe this demand was driven primarily by promotional efforts of retailers that reduced the average retail price.

In Exchange, sales increased 9% to $18.3 million, driven by an acceleration in U.S. Exchange same-store unit growth, which was 9.5% for the quarter.

We are excited to see the impact of our promotional investments and the resulting new water households. Refill sales increased over 14% to $41.5 million.

The increase was the result of the integration of the Glacier business in 2017, an increase in the overall volume, and to a lesser extent, the price increase. The completion of the integration of the Refill business and related retailer contracts resulted in a number of Primo locations being moved under Glacier retail contracts in April of 2017.

As noted previously, revenue under Glacier contracts is reported as the gross amount charged to the end consumer. This resulted in a positive impact on revenue of approximately $4.1 million in the first quarter of 2018, with no impact on adjusted EBITDA.

The integration of contracts was completed in April of 2017, and we do not expect this to have an impact on the sales and adjusted EBITDA in future quarters. We did see growth in the overall Refill unit volume of 1.4% in the first quarter of 2018.

Lastly, as mentioned in the latter part of the first quarter, we began to expand the price increase to additional outdoor, coin-based locations. However, given the timing of the rollout, it did not have a material impact on the results for the quarter.

In addition, we anticipate the price increase will negatively affect volume in future quarters, but we believe the price increase will more than offset this decrease. Turning to gross margins, the overall gross margin percentage for the quarter was 27.5% compared to 29.5% in the prior year.

The change in gross margins is due primarily to sales mix, in which Dispensers comprised 18.9% of sales in the first quarter of 2018 compared to 12.6% in the prior year. As we look at the gross margin details, Dispenser gross margins for the quarter were 10.2% compared to 11.5% in the prior year quarter, primarily due to product mix.

Exchange gross margins for the quarter decreased to 31.3% from 33.4% in the prior year. The decrease is primarily due to product and customer mix as we saw an increase in initial purchases of our Exchange water, which we believe is a sign of new water households that will fuel future growth.

Gross margins for the quarter in our Retail segment increased slightly to 31.6% from 31.5% in the prior year. Next, SG&A costs for the quarter decreased to $9.2 million from $10.5 million, primarily due to an increase in employee-related costs, including noncash stock compensation expense, partially offset by the planned increase in marketing spend.

As a percentage of sales, SG&A excluding noncash stock compensation decreased for the quarter to 10.7% from 13.5% in the first quarter of 2017. Overall, we continued to display the ability to leverage our costs even as we begin to invest more in marketing initiatives designed to grow the business.

Moving down the income statement, interest expense for the quarter was $5.3 million compared to $5 million in the prior quarter. This increase is primarily due to higher interest rates.

On a GAAP basis, for the quarter, we had net income of $1.2 million or $0.04 per diluted share compared to a loss of $11.9 million or $0.37 per share. This is a result of increased sales as well as the reduction in SG&A and nonrecurring and acquisition-related costs.

In addition, in the quarter, we recorded an income tax benefit of $1.7 million, primarily related to the generation of net operating loss carryforwards, which do not expire under the new tax laws that went into effect in 2018. Adjusted EBITDA increased 26.6% to $12.4 million, or 16.8% of sales from $9.8 million or 16.1% of sales.

Although our investment in marketing and promotions will increase over time, we believe we will continue to improve the adjusted EBITDA margin as we target 20% to 24% annually over the next several years. Turning to the balance sheet, we ended the quarter with $5.3 million in cash, our senior leverage ratio was 3.26x, while our total leverage ratio when factoring in cash was about 4.8x, both down slightly from year-end.

We believe we are on track to reduce leverage going forward, approximately one turn a year through the growth in EBITDA and the paydown of debt with free cash flow. Now looking at the statement of cash flows, our cash flow from operations increased significantly to $4.5 million compared to essentially breakeven in 2017.

This increase is a direct result of the reduction in the net loss before income taxes, offset somewhat by working capital adjustments. Due to the seasonality of our business, we generally use working capital in the first half of the year and see positive working capital in the second half of the year.

Cash flow from investing activities decreased to $3.7 million from $5.2 million as a result of lower capital expenditures. Turning to our outlook for the second quarter, we expect sales in the range of $70.5 million to $73.5 million, driven by continued strength in Exchange, improvements in Refill, partially offset by the timing of Dispenser sales.

As Matt mentioned, we believe the new households created through our marketing and promotional activities will continue to drive growth in Exchange and Refill. Refill does include minimal growth related to the price increase, while we continue to analyze the full impact of the rollout.

For Dispensers, we expect sales to be down from the second quarter of 2017 and sales were pulled forward into the first quarter of this year, while in 2017, we experienced a shift in sales from the first quarter to the second quarter. Regardless of the Dispensers sales shift explained above, when comparing the first half of 2018 to the same period of 2017, our growth trajectory remains healthy on a consolidated basis at approximately 7% using the midpoint of our guidance.

For adjusted EBITDA, we expect the second quarter to range from $14.7 million to $15.2 million. At the midpoint, this represents an adjusted EBITDA margin of nearly 21% or an improvement of over 200 basis points from the second quarter of 2017.

This is a result of improved gross margins in the Refill segment as well as a lower mix of Dispenser sales. Looking at the full year, based on the results of the quarter and the anticipated impact of ongoing marketing initiatives, including the price increase, we are increasing our guidance.

We are adding $5 million to our full year sales estimate and are now expecting sales of $303 million to $307 million, up from our previous guidance of $298 million to $302 million. Turning to adjusted EBITDA, we are reiterating our full year guidance of $61 million to $63 million as we expect to invest the incremental gross margin dollars into existing and new marketing initiatives, which we believe will drive future growth.

At the midpoint, this represents an adjusted EBITDA margin of 20.3%, which is a 120-basis-point improvement over the full year of 2017. In conclusion, I'm excited about our business as we continue to focus on growing the top line, deleveraging the balance sheet, and creating long-term shareholder value.

With that, I will turn the call over to Matt for closing remarks.

Thanks, David. We believe our results and progress represent the strength of our business and ability to increase our growth rate.

We have an extremely loyal and valuable consumer base, and knowing their long-term value allows us to invest, while we balance consumer acquisition cost with our retail partners. This quarter was impressive across many key metrics, such as Exchange, same-store sales, Dispenser sell-through, SG&A leverage, among others, hinting at our ability to increase the growth rate of our business, while doing so with already strong EBITDA margins.

Our strategy has been intentional for years, create great products and gain massive distribution, then turn to marketing. With over 45,000 points of distribution, we have convenient scale to leverage our marketing spend and communicate to households.

We are excited to increase our investment in marketing and believe it will lay the foundation for long-term and sustained growth. As we increase our marketing investment and pair it with our testing philosophy, we have the capacity for an inflection in our revenue growth trajectory on top of a healthy core business with strong fundamentals.

With that, I'd like to open the line for questions. Operator?

Can you expand on the contract integration for Refill in the quarter? I really don't recall this being called out in prior quarters, yet it sounds like it happened in April of last year?

It did. In April of last year, as we were integrating the two businesses.

And we have - where we had locations, Primo locations and Glacier locations at the same retailer, we would look at the contract terms, and more than likely, the contracts - our locations would fall underneath the Glacier refill contracts. We did that in April.

Quarter-over-quarter, it's the impact we mentioned, but when you look at 2017 Q2 and other quarters, the majority of the impact last year was just related to the acquisition and the bringing of Glacier locations into the business. So it wasn't material, overall, last year.

Got it. That makes sense.

Okay. And then, just one more for me.

On the $5 million increase to the 2018 sales guidance, can you - is all of that price increases? Can you kind of help us think about what goes into that?

And then, second to that, how much volume compression are you accounting for?

Yes. So on the volume compression, we have - we're not disclosing that information at this point.

But as we look at the guidance, obviously, Q1, we had really strong Exchange sales growth of 9% overall. So we're pulling that forward into our guidance for the full year, in the 7% to 9% range, as we look at customer attrition as we analyze the results from Black Friday.

In the Refill segment, there's a small portion, a very small portion for the price increase, but overall - on the Refill side, we're seeing in the 2% range, overall increase. And then, Dispensers makes up the difference.

Just a couple of quick ones. One, just wanted to look at some of the additional growth initiatives, obviously, you've taken the price increase, you certainly gained some traction, which is great.

But looking at some of the marketing tests in particular, maybe you could peel the onion a little bit, maybe give us some idea of what you're seeing in terms of uptake or lift on some of the video screens in particular?

Mark, this is Matt. Great question.

As we've explained, we're finding levers in a whole bunch of different areas, which we're really excited about and we think we should and will invest in those more heavily than originally planned. That's all great news for us.

We're finding those levers across a bunch. So e-commerce, we mentioned, is one, which is a small part of our Dispenser sell-through today, and we're finding more and more control of our ability to communicate to consumers.

We're finding the ability to improve our signage at Retail. We talked about CD joints that we have rolled across Walmart and we'll be expanding that to other retailers.

And so if you just take those two as more of - if you just take those two, our ability to communicate better online and in-store, given the amount of traffic in both, we are seeing good results. Video screens is another example, where that is helping to explain - better explain the Refill proposition to consumers, and that has certainly had a lift.

We're not sharing the actual lift by program, but overall, those things are driving our confidence in the business and raise on revenues.

Got it. And then, in terms of - just so I understand, the 9.5%, I think, percent same-store number, was that in aggregate?

Or was that the Dispenser number? Maybe you could break that for us a little bit?

Yes. The 9.5% was our U.S.

Exchange same-store unit growth, on a comp basis. And that's - when you look at that, 2017, we were at 6% pretty much all year long or just over 6%.

So that's - and it's an acceleration from 2017. And also, on a much larger base than we've had in the past.

Great. And then, last question, obviously, you guys have really pivoted your focus on driving same-store sales.

Looks like it's paying off. When you think about kind of the burndown or burn off or whatever expression you'd like to use for some of the stores that are closing, that you're in currently, is that in a - are we on the downward slope of that?

Or where are we in that cycle? Just, basically, looking to see where that becomes, not necessarily a tailwind, but not a headwind anymore?

Mark, great question. If I could fully predict the retail closures, that would be really great.

I think we will continue to see compression, certainly, in channels and stores that have not had a big impact on us to date. I look at it the other way, Mark, where if you think about our core business and where it is in Walmart, Depot, Lowe's, Kroger, we're really well situated there.

It's more of the smaller retailers that are going to be compressed throughout the process. That said, on a net basis, we do expect to lose some, as we go forward, but we're going to continue to add good locations.

But it's hard to predict exactly what that sort of turn down will be, although we do expect to continue to lose lower productivity locations.

Matt, can you talk about, in terms of attach rate, I mean, clearly you've got a very large lift on the Dispensers, any indication - has that all fully shown up in the Exchange volumes? Or is there some that has yet to come?

Great question. We think the majority has come, Amit.

We could see a little bit more with that, but we think that the program was so successful because it really drove immediate connections. So when folks did buy a dispenser, they walked out at a greater rate with water.

So we think the majority of it happened right away, which is why it's so positive and why it drove Q1 same-store sales. We think we've got the majority of it, but I'm sure there's some lingering effect that will happen.

So given that, so I mean how successful that program was and obviously you're going to replicate that across other channels and retailers. As we think about, not this year, but other years as well, should we structurally look for a more solid top-line growth, especially in the Water business?

Yes, we're going to lean into the business, and I think you'll see us walk up probably conservatively, our estimates on growth, certainly in Exchange from that 6% where we were before. So obviously, we're at 9.5% for Q1.

We do think we can get it back up to closer to 10% range. Some quarters we may certainly cross that.

So that is our goal, to get back to that 10% range on growth. Because it's your - to answer your question, Amit, is that we're going to continue to lean into promotions like this because the formula clearly worked for us.

Yes. No doubt, that's very clear, looking at these results.

And then, just thinking about all the upfront investments that you're making, whether technology or signage, when we think about the payout from that, not just from the top line, but also from a margin perspective, as some of these investments start to become more normalized, is that something that could potentially be a margin accretive as well? Especially if you count '19 and '20?

So let me step back, I'll try to answer that and feel free to sort of go deeper. So we have seen multiple opportunities where technology can increase gross margins.

We think some of the work we just did like Roadnet and others in routing, will build us some efficiencies and increase margins in the base business. So we do definitely see that margin - we do see some margin expansion in Refill.

On the payback, we look at payback gross margin increase, and we typically look at an IRR model, where we want at least 30% IRR over the life of the asset. So that's our hurdle rate here, which is pretty successful, that's a measure we use for all these programs.

Any of the technology that we're putting in now, we do believe, to your question, will add some level of efficiency to the business.

And the last one for me, I think that the growth rates between the Refill and the Exchange businesses are diverging and potentially diverge even more. Is there any margin implication from a mix perspective as these two businesses grow at different rates?

If you look at the margins of Exchange and Refill, they're, right now, both around the 31% to 32% range. The exchange margins are pretty solid, and with volume, will stay in that 31% to 32% range.

With the Refill margins though, as Matt mentioned through technology, through increased volume or through the same-store sales, the fixed cost model of that business will allow expansion in the gross margins to the 32%, to 34%, 35% range. So as Refill grows, margins will start and mix of the two segments, you'll start to see some margin expansion overall.

Could you help me a little bit on the 185,000 dispenser sell-through? I think you guys kind of attributed that to some promotional efforts at retailers.

Was there any specific retailers to call out? I guess I'm trying to search for why it was just that strong.

Yes. Mike, this is Matt, great question.

It wasn't - it mainly was not based, actually, on promotional activity. We believe it's a - sort of it's a fall over, in a good way, from just heightened awareness.

So what we did in Q4 was get the word out about Dispensers and Water together, and I think there's a bunch - obviously, a lot of people contributed and got into the solution in Q4. But there're a lot of folks who won't buy in the very first time they see it.

And then, they'll come back, and we saw that in Q1. So I think when you hear us talk about increased marketing and awareness, it's because we're seeing things like that occur and impact not only the current quarter, Q4 of last year, but the sort of, in a good way, the hangover into Q1.

So I think we're going to lean in on awareness. And as people consider more alternatives to drinking tap water, then we're going to want to make sure that we're part of that consideration set.

So I think it's a good sign of our awareness-building activity.

And Matt, could I maybe add to that or amplify it a little bit by just saying, if you were so prevalent in Walmart with the Black Friday promotion, you think people saw the promotion, but maybe bought it in 1Q...

Yes.

And that gave you kind of a lift plus your promotioning? Is that fair?

Yes. Yes.

That's - well said. That's fair.

Again, this is why we'll lean on awareness and promotions, and while we do believe they'll have a distinct impact in that quarter, we believe there's a really good, long trend to that awareness work. So no, you're understanding it perfectly.

That's exactly what we're seeing.

Got it. And then, this summer, you have the Memorial Day Lowe's promotion, any others on tap for sort of the summer time period?

Not quite yet, but we are working and talking to all of our retailers on ways to really, almost pull Black Friday across the year if you will, right? So from my perspective, a great Black Friday, we sold a lot of dispensers.

We barely had any Water impact, right? So we think if we could stretch that kind of promotional activity across the year, across retailers, we think that will just continue to enhance the awareness of the category, and people will see it across different retailers that will really help the overall segment.

So we're pretty clear on where we want to go in that formula. And so we're not shy about talking to retailers about it.

Great. And then, just kind of flip into the price increase at Refill, about what percentage of your locations has it been rolled out to?

Mike, great question. We're not sharing the actual percentage.

And I'll tell you why, because we do believe this is ongoing optimization process. And we're going to continue to watch and analyze, and just watch it carefully.

There are going to be some markets that we're going to want to tweak over time, and that's why we're not sharing that. All that said, I feel really good about what we have done to date on price increase.

We're analyzing it closely, and we think we're going to be in pretty good shape coming the end of Q2, as it relates to outdoor locations.

Let me just follow up on that question. So on the price increase, what I think I heard you just say was that places that you are going to roll out a price increase in outdoor refill, not necessarily all of those locations was that done in the - at the end of the first quarter, there are others that you may roll out in the second quarter or even the third quarter.

Is that a basic takeaway from what you just said?

I think that's right, Mike. Yes.

Okay. All right.

And then, I guess on the little commentary you made around M&A opportunistic deals at the right price, are there are a number of those out there? Or is everything pricey at this point?

Or what do you see as likely level of activity over the next year or two years in terms of M&A? I mean is it likely that you do a deal or two a year?

Or is it kind of a stretch, given where, maybe, valuations are?

Great. Great question.

So let's just put this in perspective, Mike, right. With the combination of Primo and Glacier, we have over 90% of the Refill market share in the states.

And so that just - all on the map doesn't allow a lot of opportunity. But there are some good opportunities for us from an M&A.

On the flip side is we don't have to do any of those, as you've given the growth rate of the business and all the marketing programs. So those deals would have to be attractive for us on a - post-acquisition multiple.

So we're going to keep looking at them. We obviously know the Refill space very well.

We know that list of potentials and we'll keep watching them and/or having conversations, and when that price is right, we'd happily do it. But we don't have to do it, which is always a good position to be in.

Yes. Absolutely.

So I guess in terms of kind of items that could kind of move the needle in terms of numbers over the next year or two, the pricing test, I think, is probably uppermost in most investor's minds. But how would you rank the - some of these other items that you've discussed, whether it's driving increased efficiency in Refill, whether it's e-commerce, signage, technology, I mean how - what - after the pricing test, what are actually the best potential needle-moving items in your view, if you look over the next 12 to 24 months?

Yes. It's a great question.

I think the - if you think about where we are as an industry, and with HOD included, only 5% of American homes have a dispenser. Then, there's really a good opportunity.

But people need to understand better, and this is our job to help them understand why a dispenser in their home will help them drink more water. And that's a key - that's a key, sort of finding we've had that our consumers have shared with us constantly, that I'm so happy to have a dispenser at my house because we're drinking more water.

You add that to the tap water concerns and - we just need to make sure we're higher in the consideration set to consumers. And that leans on e-commerce, that leans on signage in-store, and that - literally, that's why we were testing, and we are testing some things like even traditional media.

And so I think that the - we have to be higher in the consideration set, and that's where we're working on a lot of these programs. Video screens at Refill work right in that as well.

So if we can continue to tell our story, continue to help consumers understand that their families can drink better, more water, that ranks way up there in terms of just about any parent's wish list for their family and we have the solution that helps them do that. So I think awareness and consideration are going to be a big part of our focus moving forward.

Okay. Great.

Last one. So you did the Black Friday with Walmart.

You're talking about doing the Memorial Day with Lowe's. I mean is there any prohibition from doing multiple chains on a certain holiday?

Or if for some reason that doesn't make sense. Can you just speak to that?

Yes. No, I don't think there's any sort of handcuffs on us to overlap.

I do think it's smart to parse that stuff and stretch it across the year. But I don't feel any reason that's - because of the market penetration of 5%, there's a lot of Americans and Canadians who need to learn more about this.

So I don't think there're any handcuffs, if you will, on how we do it. Typically, the planning cycles of different retailers are different, and so that will just naturally spread that across different times in the year.

But I don't see any reason to - if we were to duplicate those efforts across retailers, probably just even more awareness. But typically, it doesn't happen like that because they're planning cycles are different.

Thank you for your participation on today's call and interest in Primo Water. Have a good evening.