Primo Brands Corporation (PRMB) Earnings Call Transcript & Summary

Formed through the merger of Primo Water and Blue Triton, Primo Brands is in the early stages of executing against a compelling growth plan that leverages water category tailwinds, the strength of its combined portfolio and a material margin expansion opportunity. Business integration is off to a strong start, and early results are demonstrating the value creation opportunity of the combined company. With this strong execution, robust cash flow profile and ongoing balance sheet deleveraging, Primo should be well positioned to capture growth opportunities over time. With us today, we have CEO, Robbert Rietbroek; and CFO, David Haas, to discuss Primo's strategic opportunities and outlook. I want to thank you guys for being here.

Thank you.

Thank you.

Can we maybe just start, obviously, combined business. Can you talk about the brands, the size, give us a little bit of an overview of that, before we get into some of the strategic stuff.

Yes. Thanks, Andrew, and thank you to all of our audience here for coming this morning, and thank you to BMO for hosting this event. It's a great event. So we are now a fully merged company. It's a combination of Primo Water and what was called Blue Triton Brands, which used to be called Nestlé Water. And we have a coast-to-coast manufacturing network of over 50 manufacturing sites and over 200 branches that supply retail outlets, commercial customers, residential customers, away from home with water, basically, primarily. We also sell other beverages, but largely water. And we have a wonderful fleet of brands. So we have 7 brands that are over 100 years old. These are the -- some of the oldest trademarks in the beverage industry in the United States. I'll give you a couple of examples. Poland Spring is a 180-year-old brand. They used to deliver Poland Spring right here in the street with a horse and carriage all those years ago. We have Saratoga from 1872. Mountain Valley from 1871, from Hot Springs, Arkansas. Brands like Ozarka. Brands like Arrowhead, Deer Park. All the brands -- for those from Florida, Zephyrhills. All the brands that you know and love in water, we have in our portfolio. So we're very proud of that. We have a very large retail business. We sell about -- bottled water in about 200,000 outlets in the United States. And as I talked about in the call that we had last week in the analyst call, we are growing distribution. So in the last reading, we're up 5% in total points of distribution. So we're moving forward in our total presence in retail. We also have about 26,500 outlets where we sell the 5-gallon bottles, the Primo Water or Pure Life or Poland Spring, in these 36-bottle racks, and then there's a return rack. We have refill machines. So if you go to a Kroger, for instance, you'll find blue vending machines with Primo logo where you see people refilling their 5-gallon bottles, it's about $0.50 a gallon. We have a filtration business, and we have a delivery business. So we deliver a full portfolio of beverages with primarily water, both purified and spring, to residential customers. And right here in this room, if you look at the back there, there is a dispenser and there's a Poland Spring bottle there, 5 gallon. That is us. That is the cooler, the water cooler, and it's a great business. It's very, very robust. If you look at the category in retail, for instance, bottled water grew 2% in the first quarter, so the whole category, and 3% in volume. So 2% in dollars, 3% in volume. There's really only 4 segments of the beverage market that are growing right now. It's energy drinks, protein shakes, bottled water and plant water, i.e., coconut water. So those are on trend. And our mission as a company is to Hydrate a Healthy America. And that is a really short pithy way we've trademarked it, actually. We feel so passionate about Hydrate a Healthy America that we trademarked it. Because we want to sell healthy-for-you beverages, that's really our focus area. And so we try to stay away from artificial preservatives, artificial ingredients like phosphoric acid or high-fructose corn syrup. We really want to sell a healthy product. And if you look at our future portfolio, as we look at future M&A, we'll be playing in that space. So water, water-adjacent brands. So that's really a very quick overview. I'll say one more thing. 99% of our business is domestic, and it's also primarily sourced and manufactured locally. So that gives us a really strong advantage when it comes to things like tariffs. Because we have a lot of competitors that are imported from Europe and from the Pacific Islands, for instance. So we're domestic and we're vertically integrated. So we primarily blow our own bottles. We have our own spring sources, 90 spring sources in total, and we fill our own products. And on half of that, not quite half, but let's say, 40%-ish is direct delivery. So we go all the way from getting the water from the springs, putting them in the bottle, putting it on the truck and delivering it to the end customer. There's no middleman on that side of the business. On the other side of the business, we go through Walmart, we go through Kroger, and we are very focused on delivering them category growth and a margin-accretive business. So in summary, domestic beverage, leading branded beverage company with trademarks dating back 180 years. And we are a volume-driven accretive company. So that's a summary of who we are. Thank you for the question.

Absolutely. It's been 6 months now, I think, as a combined company. Can you reflect on how that process has gone with the integration, and any surprises or kind of anything that you've learned as you've gone through that process?

Yes. So we're putting together 2 very large systems. So we have branches from ReadyRefresh, branches from Primo, and then we had a network of just under 70 manufacturing sites that we're bringing back, reducing to just over 50. So what that means is we're going to have to -- one, we have to consolidate branches, i.e., when you have 2 branches that are practically across the street, now how do we bring that into one. Sometimes it's just going to 1 of the 2 sites, sometimes it's going to another site altogether. Then you have the reduction of manufacturing. So we have to set up new logistical networks, we are building a stronger fleet and we're driving synergies. So we've committed to $200 million of synergies within 2025, $300 million of synergies by the end of 2026. And we feel very confident that we will deliver that. Obviously, integrations are tough, right? Nothing is perfect. I mean it's full of learning. So that's why we have phases, and we call them R1, R2, R3, R4 and R5. So we are going through a third phase now of branch integrations. The first one was small. We tested the system, we learned how to improve, then we did a slightly bigger one. And we do it city by city. So we'll do Dallas, we'll do Los Angeles, we'll do Colorado. And we're learning and it's not perfect, and we're fixing on the fly. That's why the focus for this year is truly primarily the integration and getting to a flawless integration, so that by the time we get into 2026, you all see a true picture of this business. It's far from perfect, but it is working well. We've not had major hiccups. But think about things like data integrity when you're transferring a database from one system to another. Enterprise software, so migrating our facilities into SAP. Those are all single individual projects that go side by side that need entire multifunctional teams to execute with excellence. So we're very proud of the team. Very thankful of the team -- for the team. And we're in the middle of that, and we'll keep you updated on that.

Great. One of the things maybe that I didn't appreciate enough initially was how some of those integration efforts, and once you get the optimization completed, it kind of enables some of the growth drivers. So can you kind of talk about how that works and what maybe you're not able to do now that you'll be able to do in the future?

Yes. So I think Robbert articulated it perfectly. When you are in the large format, what we'll call 2.5-, 3-, 5-gallon business that's traditional home delivery or, again, commercial places of business, you have to set up your production and your branch network very local. Water is heavy, 42 pounds on average for 5 gallon, 60 pounds if you're in a Mountain Valley 5-gallon glass. You have to be local. You have to be close to your source of water, so you're not doing tankering and you have to be close to your customer. You have to be on the backside of taking 2 different production lines that are likely inefficient on their own, but together, we can pick one. You have to take 2 or more branches in a certain community and consolidate that to the right footprint so you make the right deliveries. And then you, most importantly, have to pick the right brand that resonates with the consumer. A true benefit of this merger was a lot of the regional heritage of the legacy Blue Triton regional spring water brands; and Primo, which was really known for its Mountain Valley Primo purified brand, which is more of a nationwide brand, like Pure Life was; and some regional ones that we had acquired over time, but maybe didn't have the perfect resonance, like the regional spring portfolio of Blue Triton did. So when you get to the backside of bringing all that together, having your workforce chosen, consolidated and more efficient, that's when you really can unlock growth. When you run a production line at 50% to 60% efficiency and you're running 2 of those, that's not very helpful. When you get to run one and you're running more than one shift a day, more than a few days a week, that's a really good back -- something to get on the backside of before you can really unlock that growth. So we have yet to even cross-pollinate a lot of the products. So if you're a legacy ReadyRefresh customer, today, you don't have access to Mountain Valley. You certainly can go buy it at Whole Foods. If you're a legacy Primo Water customer, you don't have access to Saratoga, you might not have access to Poland Springs in a 5-gallon format. We have to get to the backside of this year and get all of that consolidated before that offering can really be unlocked. Now again, it all depends on the economy, where the consumer is at this stage. But again, we remain very resilient with our offering. But it's a great question, we just really have to get through integration.

And so this year is 3% to 5% top line. You laid out the long-term growth algorithm consistent with that, 3% to 5% top line. Can you talk about why that's the right level? How you kind of built to those numbers?

Sure. So as everyone remembers, we announced this deal in June. We received kind of a very fast track approval from the regulatory agencies, which honestly surprised us a bit. It was great. We didn't feel like we -- we're still a very small piece of the overall beverages category. But nonetheless, we were ready to go and we are moving fast, and we have been building our integration playbook. We then get the deal closure and we get to the start of the calendar year. And we had pretty good exit velocity of all of our brands and our categories coming into 2025 and a great start to the quarter, and eventually, great results that we released last week. But obviously, some of the dynamics of the consumer and the macro industry are changing in real time, right? If you just think of the tariff conversation, we've started with 0, then 50%, then 145%, now 30%. Maybe it will be 10%, maybe it will be 0. That causes a little bit of paralysis with our retail partners that we're working through. And again, it's just the dispenser business, and we'll talk about that in a bit. But that's, overall, maybe shifted into some of the consumer dynamics. So when you step back to the beverages in general, we remain a volume grower, an organic grower and pricing was absolutely minimal in Q1, which was a very rare set of occurrences when you look at beverages. So again, I feel like we're in a really good start and a place to sort of launch this year, and we'll grow into that algorithm. And as we've talked about, once we're on the backside, we can really focus on optimizing channels where we're a little weak in club right now, optimizing some of our brands that we could sort of turn a little faster. And then you've got 2 rocket ship brands that Robbert will talk about, with Mountain Valley and Saratoga, where we literally can't keep up with the demand right now. It's a phenomenal problem to have. But that shows you really the diversity and what we're dealing with every day as a company, which is a great diverse branded set of water businesses.

If I kind of zoom into the very near term, there's been a ton of focus on some of the scanner data recently with the timing shifts. And I just -- what is your perspective on that? I guess how are you seeing between timing shifts and, maybe internally, how that's all playing out relative to your expectations? You mentioned growing into the algorithm, but you were kind of on the lower end, but on an underlying basis, kind of just north of the midpoint. So how do I square all of that?

Yes. Look, the scanner data, it tells the real story. I would say, if you have access to scanner data, use it. It's -- we use Circana, you can use Nielsen as well. And what we've seen year-to-date is that in the first quarter, we expanded our market share or value share, dollar share in the bottled water category by 30 basis points. So we were the only branded, large player to expand our share. If you look into -- through April into this quarter, we continue to grow and expand our share versus a year ago. So that's a really positive situation on the share side and scans are growing as well. In the first quarter, we did see that volume was up 3% for the category and value was up 2%. I'm saying at the 2%, 3%, not at the 3.1%. I'm just saying not -- before a decimal. And the reason I bring that up is because prior to that in the 3-year CAGR, we saw revenue growing faster than volume. So we did see a little bit of shift in the first quarter where private label and promotions drove the value equation slightly around, which really tells us that we need to stay competitive promotionally and have strong merchandising. If you look at the first quarter, last week of the first quarter, last year was Easter, this year wasn't Easter. Easter shifted into April. And so we saw a little bit of promotional overlap. So you see an immediate Poland Spring impact in the Northeast. And so we are learning to make sure we have weekly calendars and overlap analysis to make sure that we smooth out some of those share impacts. But overall, we're pleased that we're growing share in the first quarter, growing share into the second quarter. We're pleased to see the bottled water continue to expand as a category, which is not the case for all segments in the beverage market. Now the people ask me often, why is bottled water growing? And it's a complicated question with a relatively complicated answer. But if I simplify it, there are 3 sort of major trends happening. One is that people are more likely to shift from municipal tap water to bottled water. Municipal tap water is regulated by the EPA and bottled water is regulated by the FDA. The average distance from the water treatment plant to your house is 7 miles in the U.S. And some of the pipelines they go through is antiquated and there are different materials. So you have wood pipes, you have metal pipes and plastic pipes. And we see more and more people concerned about the quality of their tap water, and that's why they go to bottled water, and very often this 5-gallon format that we see in the cooler. Coolers used to be more office, right, office space. But after COVID, it became a big idea to have a cooler in your house with a 5-gallon refill that is exchangeable or deliverable. The second trend we see is somewhat driven by Make America Healthy Again and the awareness of mostly moms around artificial ingredients and choosing to go for water rather than maybe other beverages. And that's a big macro trend that's been going on for a while, but it's starting to, in our view, become top of mind with consumers. So hence, there's only 4 categories growing right now in beverages: energy, bottled water, protein shakes and plant-based. And we happen to be very much in the bottled water. And then there's an alcohol decrease as well, which is happening. So consumers are -- in addition to using things like Ozempic and various other things, they are more conscious of their health right now. There's a huge groundswell around health awareness. I myself am currently trying to cut carbs. I got feedback yesterday that I've lost a little weight. I'm very pleased about that. I know we're all very conscious of that, get on a scale, look at our weight and try to think about what we eat and drink every day. And people always get -- ask a question, do you drink enough water by their physicians, and it's because hydration is a very big part of your health. And that's the driver of bottled water growth. So it's a complicated multivariable consumer trend that we see. We believe it's going to continue. There's no reason why this should change. Of the $250 billion beverage market in America, bottled water is somewhere between, let's say, around the $30 billion mark. So there's a lot of growth possible for the category. And we take advantage of that as we're the market leader in bottled water. So from a long-term trajectory, we are well positioned.

So okay. So we've got category tailwinds. You guys have been outperforming. The premium brands, which you already mentioned initially, have been driving really outsized growth. How do you think about the durability of that and the contributions within the 3% to 5% algo? What's your kind of assumptions and what's been driving that growth?

Yes. So again, separate companies as we were going through the merger process had laid out their own operating plans heading into 2025. We each had our own suite of brands, offerings, pack sizes, different bottle tops, plastic, aluminum, glass. So then you come in and you start to blend the businesses, and you've got this collection of regional spring water that grew just over -- just under 1%, a little over 1% when normalized for leap in Q1. And then you've got a purified set that grew a little around 3%, a little bit higher with effect of leap. And then you have these super premium brands in Saratoga and Mount Valley that almost grew 50%. And scanner data, I think, right now in the month of late April and early May is growing at like 100%. So there's a real blend of diversity and offerings that you have in this business. And there's also, what you'll see, is an unapologetic way to clean up the portfolio. We talked about this at Investor Day where, just prior to the merger, the legacy Blue Triton business decided to exit the Eastern Canadian operations where there wasn't scale, there wasn't profitability. We still have a Western Canadian operation. We still have a home and office delivery piece in Canada that just may not be the right thing for us long term. Domestically, we also have an office coffee solutions business, which is really supplementing case -- excuse me, Keurig and brew coffee and other services to sort of break rooms. That might not be in our long-term best interest because it might not match the accretive behavior of the profile of our profit or our cash flow. So our Board and our management team has been unapologetic at looking at the business and saying what are the right businesses we need to be in. And across this year, we'll probably take action on some things that are not accretive or really supportive of that. So that inside -- that's already inside the 3% to 5%, but there might be some more extreme actions we take as we look through that portfolio and say, we've got to be in the right SKUs with the right products and the right form factor for each consumer offering. So that's why 2025 is not only about the integration of the field operations, the branch operations and production, but it's also really taking a hard look at how we make money on each rational -- excuse me, on each SKU and going through rationalization opportunities to really clean us up to have a really successful '26 and beyond.

And so as an outsized driver within the premium space, where do you see the biggest opportunities to continue to grow that? You talked on the earnings call about distribution opportunities or some distribution wins. I don't know what you can say specifically about that over the balance of the year that's going to contribute to some of that acceleration over the course of the year.

Yes. We -- if you look at the last Circana data, you'll see that we're up 5% in total points of distribution versus a year ago. We track TPD carefully, it's usually a strong driver of success. And there's multiple ways of driving top line. You can drive distribution, you can drive volume, you can promote, you can take pricing, you can drive mix. We use all of those. We're -- overall, we're a volume-driven accretive business. We drive distribution on new items like Splash, which is a great new drink, beverage with flavor, premium Saratoga, Mountain Valley, even case pack, where we have current distribution opportunity, white space, we fill that with Pure Life case packs, still has distribution opportunities. Now if you look at the premium brands, which I think you alluded to for a second, Saratoga and Mountain Valley in the first quarter grew 49% combined. Saratoga grew a little faster off of a smaller base. I talked about in the earnings call that Saratoga passed $20 million of revenue in the quarter and Mountain Valley passed $50 million in the quarter. And that's obviously a combination of warehouse pricing and -- or wholesale pricing, I apologize, and direct-to-consumer delivery. Those brands have historically been capacity constrained. They came out of private ownership into, respectively, Mountain Valley into -- I think at the time it was Cott, and then Saratoga was acquired by Blue Triton. We've spent, as independent companies, a lot of effort in unconstraining or debottlenecking capacity. That's a function of water source. Bottle capacity, you've probably seen those very beautiful blue bottles, they're really hard to procure. And in green bottles for Mountain Valley that are embossed and beautiful. The caps are very unique. And then putting all of that together, we are now pretty much unconstrained on Saratoga, where we have tons of capacity, both in bottles and caps and water. And even we're adding a new source for Saratoga bottled spring water, premium spring water next year in Texas. So we're going to start manufacturing the Saratoga brand in 2 locations. That is really beneficial as you expand distribution. For instance, we have distribution on Walmart with a 6-pack Saratoga PET. We're also focusing on grocery, and we're driving Saratoga into the restaurant and away-from-home channel, hotels, lodging, restaurants. When you go to a restaurant, you often get the question, would you like water, first of all? Then do you have any bottled water? Yes, would you like spring or sparkling? And that's the insight. We really want to be that blue bottle on the table, in some cases, green, but mostly Saratoga is a focus for restaurants. And we come in both spring and sparkling. Mountain Valley, we added spring capacity. Springs flow at a certain speed, so you cannot manipulate that because then it becomes a well. So the spring just comes out. We have an additional spring that we added. So we quadrupled water capacity on Mountain Valley last year. We've added bottle capacity, bottle procurement. We're going to add a full greenfield site next year on Mountain Valley with new bottling, glass bottles. And we're going to have to get more sequential on Mountain Valley because we're not totally unconstrained yet. We have to continue to build capacity. So as we get distribution requests, which we do, we will try to honor as many of them as we can, but we will be choiceful as well, because we want to make sure we continue to deliver high customer service. So it's a tale of two cities. You had Saratoga, completely unconstrained. Mountain Valley, sequential distribution and capacity buildup. Multisite on Saratoga, single sourced on Mountain Valley in Hot Springs. Now from a brand side, we all saw -- I probably -- people in this room saw Ashton Hall, the fitness influencer who dunked his face in Saratoga and put banana peel on his face. That was incredible. I mean I was -- we're so thankful to this incredible fitness influencer called Ashton Hall, he really helped put our brand on the map. It was totally organic. It's what he actually does. He's a big fan of the brand. And we also did the Golden Globes this year and -- in a close partnership with Jay Penske of Penske Media. He was a wonderful partner to work with. And you probably saw all the tables had a champagne bottle -- little champagne bottles and the little blue bottles. If you saw the globes, it was just omnipresent. And we did it again at the Milken Conference last week. And there was even an article that said that Saratoga was the big winner of the Milken Conference, where I participated in a panel discussion. So these are the type of unexpected, exciting little moments. And the Mountain Valley last week was the official water of the Academy of Country Music Awards. The Academy of Country Music Awards celebrated its 60th anniversary. It was a massive event at The Star in Frisco, Texas, and it was an Amazon Prime. You can replay it if you'd like. It's a wonderful show, again, with Penske Media. So those type of partnerships really help our brands become contemporary. And if you ask me, look, why is Saratoga part of the Globes? Well, it's a very elegant blue bottle. It has star appeal. And Mountain Valley is Hot Springs, Arkansas, it has an authenticity that you think of when you think of country music. So we're evolving the brands. We're really behaving like -- we may not be billion-dollar brands yet, but we're starting to act and behave like them in anticipation of a multiyear, strongly accelerated growth on those 2 brands. So thanks for the question.

Yes, absolutely. You talked about healthy hydration broadly. And so I'm curious where you'd like to take the portfolio over time. You don't have a big presence in kind of enhanced functional even on the flavored side, which happen to be faster-growing portions of the water category. So how do you think about that? And how do you weigh kind of doing it internally versus on the M&A side?

I will let David speak to our capital allocation strategy. But in short, in 2025, we're focused on integration, synergy delivery. In '26, we start opening up to M&A and acquisitions. But David, why don't you talk a bit about capital allocation?

Yes. I think the one exception is while we're already going through branch integration, if we're in a particular city, Blue Triton's next door, legacy Primo, Blue Triton essentially looking at each other, and there's someone local to acquire that's in a 5-gallon route distribution system, like legacy Primo was very prone to do, we've kept that pipeline warm. We've started our outreach again. And you'll look to see us do some inorganic things in that particular case, because that's no different than doing the current integration. And when you have 2 sites in a particular city that you're consolidating and there might be a tuck-in acquisition nearby, you should do it right now because then you understand the fleet count, the parking spaces, the route loading you need, as opposed to picking the best site and then saying, oh, shoot, I wish I would have known there was a target in that geography, where I could have brought it. So the one exception to that capital allocation, which, again, wasn't your exact question, would be we will dedicate some M&A space and time this year and forever, frankly, in the large format space. As we get through '25 -- again, you've talked about it, all analysts have, the cash profile of this business will be very robust, we will start to explore adjacencies to our core business. We've done a good job with innovation, frankly, but it's been a lot of packaging innovation, different tops. Again, we primarily are a plastic-based company and with, I think, over 40% being recycled plastic, which is an industry leader. We're moving into aluminum. We do have glass, obviously, in both Saratoga and Mountain Valley. So we have a lot of that functional and packaging innovation. But to really take the next step, we are going to have to look out into some of these other categories, protein, enhanced isotonics, that might be a little bit more of a buy versus build approach. But when you bring that into the portfolio of the brands we have, we're a natural acquirer over time. But our investors have been trained that we're very -- we do very accretive deals with regard to our tuck-ins in the large-format side. That might just be a little bit of a different universe as you've witnessed in some of the markets with what Celsius, KDP, Pepsi have done just in the last 4 months of this year. But we want to be on the back side of that, so it can really contribute to the portfolio.

Okay. So last one on the top line before we shift gears. I know you get asked about revenue synergies a lot. It sounds like that's not so much a this-year opportunity as beyond that. But how do you frame revenue synergies kind of as a contributor to 3% to 5%? And if I kind of put the building blocks together, this year, you're going to do 3% to 5% without the revenue synergies, without being able to push some of the things that you want, how should we think about that? Because it should be -- it seems like accretive, so yes.

Yes, absolutely. And again, when you look in the long term, we'll have brands and we'll have certain channels that might be underpenetrated, might be slightly under par with regard to our midpoint of that algorithm. I just talked about a couple of examples within the Canadian operations, what we do there will be under strategic review. And then step back and look at this dispenser business, that's only 1% of our company, so around $70 million. If I could sacrifice some of that top line and take the -- it does -- it basically breakeven. We attempt to do a razor-razor blade model with all of our 5-gallon businesses there. If I can reduce that revenue, but increase the household penetration of those dispensers or commercial places of business, I should do that every day. And so there are moments inside that algorithm where we'll take proactive sacrifices to really enhance or we might look at, again, SKU rationalization or geographic further retrenchment and come really to the United States. Those are items that are at play within that. So revenue synergies really start to take off in 2026. But again, that's -- where is the economy? What's the macro consumer doing? Where are beverages? There's a lot still unknown. And I think this year so far has proven that it's basically 1 month at a time with the consumer or the macro environment is changing very rapidly, or whatever the wealth effect is doing with the market going down 20% and right back up. So there's a lot of moving parts where revenue synergies should be totally accretive to our long-term algorithm, but there's just a lot of moving parts that are happening each and every day.

Got it. That makes sense. On the cost synergy side, you executed on headcount reductions, some streamlining of the network in the first quarter. I know it was largely later in the quarter. But what's the kind of the next phase, right? What's the next on the road map there? And if I kind of do the math on the exit rate and kind of how you're planning it, it doesn't seem like there's a lot that you're going to have to do next year. You'll be more run-rating. Is that the right way to think about the synergy contribution?

It really is. So again, Robbert mentioned we have these R waves, and we're already underway. And we'll continue to do that through Q2 and into early Q3. And it's not like we just put our pencils down and wait for the calendar year to shift, we need that to settle. And as we are learning more each and every day -- and a couple of great examples, let's say, we're just neighbors and we didn't -- somehow the geocoding didn't quite work perfectly to get put on the same route. Well, certainly, we'll learn from that because there's no reason why I should come to your house and my house on a different day. We should harmonize that so we run the least amount of miles possible. So not only are we going through these waves, but we're going through these fine-tune sort of processes across operations, production and IT to really get that -- again, the theme of the day, right, get that behind us so we can really focus on '26. So you're very right, and it's essentially our commentary. We're making great progress. We'll continue to do that into Q2 and early Q3. And then what we really pick up in 2026 are what are the fine-tuning activities we need to do, reduce miles, increase unit productivity. Sometimes we might not have access to procurement savings because of different contracts that were set up within each legacy business. If we certainly can break that to get at the savings, we will, and that's where we had some integration cost allocation. But then we'll really be on the backside of the ERP conversion as well and can we start looking again at further headcount consolidation in both shared services and in infield network.

Your algorithm includes EBITDA margins getting up to 25% by '27. Should we think of that as a margin ceiling? Is there room for margins to move higher than that over time as you evolve the portfolio with other things? How should we think about kind of the long-term margin profile?

Yes. I mean we're really excited of, obviously, a target of this year of 23%. And anyone can do the math on synergies that, that starts to really walk closer to 24% on a long-term basis. And then that only really leaves you about a basis point or 100 basis points to get to that 25%. I think it really all depends on, as Robbert mentioned, where and how we unlock Mountain Valley and these premium brands, which certainly come at a pricing and margin premium. As they start to widen out their share of our pie inside our portfolio, that's a great story. Also, because tariffs give folks like ourselves and our retail partners interesting things to talk about more real time, as I mentioned earlier, if I can sacrifice a little bit of top line on dispensers to sell more units, maybe it's a little north of 25%, but then I'm actually walking it back to try to drive velocities. This company is so much more efficient when there's volume moving through the system. Pricing is great. Volume cures all of the efficiency woes of the business. It makes your retail partner conversations. It's Robbert's entire career of going to retail partners, signing deals, expanding total points of distribution. So that is way more of a gift that will give for us. So I think anyone in this room would ask us if you can reinvest some of that business -- excuse me, reinvest some of that margin into the business to drive top line, we should absolutely do that.

That makes perfect sense. And for this year, you talked about the first quarter outperformed from an EBITDA perspective on the base business. The synergies are obviously tracking. Maintained the guidance. Can you talk about kind of the offsets or the cushion that maybe you wanted to give yourself wiggle room for?

Yes. Again, it comes back to while dispensers is not a large portion of our top line, it does have implications to make sure the 5-gallon side of our business in exchange, refill and home delivery has fluidity of creating homes and commercial places of business. So we'll continue to work with retail partners. Thankfully, we woke up on Monday with 30% tariffs and not 145%. But even 30%, we still have to have conversations, right? We hope there will be an exemption process as there have been in the prior 2 tariff implications. But this really gets to an exciting point where we can work with Lowe's, we can work with Target, we can work with Home Depot, we can work with Walmart and really try to lean in on the category and stimulate that. So if I have to take, again, what is traditionally a breakeven piece of our company at $70 million in top line and actually reinvest or spend some of that cushion, we should absolutely do that.

Go ahead.

And we would also take advantage of this very unique business model we have where a large part of our business is residential, commercial delivery of 5-gallon bottles primarily, where we don't compete with private label or anybody. It's just a single channel that we have full control over, in addition to this wonderful retail business that we have in partnership with the large retailers. So having that the penetration of those dispensers go up, drives household penetration, drives then -- it's the razor blade model, essentially. So I concur. Yes.

If you -- and maybe we'll close with this because we're almost out of time. If you think about -- I mean, you guys have plenty on your plate, plenty of opportunities as well. When you think about -- if we're having this conversation 3 or 5 years from now and you want investors to say, hey, Primo really did a great job on X, Y and Z. I mean how do you want that conversation to evolve? What do you kind of want to be known for at that point?

Yes. We'd like to be known as a volume-driven accretive growth company with -- a large, branded beverage player, branded beverage with some of the best trademarks in the category. A reliable, sustainable, predictable growth with an expanding portfolio of healthy hydration solutions. With strong partnerships with our key stakeholders, whether that be our vendors, our stockholders, our retail partners, but also the communities that we serve. We do show up when there's natural disasters. We show up immediately. We're always on location. So people rely on us, and we want to be that company that's out there with famous trademarks and also great community contributions.

Great. We are out of time, so we'll end it there. Thank you both. Thank you for everything. I really appreciate it.

Thank you.

Absolutely. Thank you, Andrew.