Q4 2019 Earnings Call
[music], ladies and gentlemen, this was the offerings.
Today's conference or should you wish to begin momentarily until that time your lunch will again be placed on <unk>.
Thank you for your friendship.
[music].
All participants are currently in listen only mode.
Colin No later than 11 am eastern time.
The call is being webcast live on cost website at www dot cost dot com and will be available for 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 U.S. and Canadian Securities regulators.
Companies 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.
A reconciliation of any non-GAAP financial measures discussed during the call. What's the most comparable comparable measures in accordance with gas is available in the company's fourth quarter fiscal year 2019 earnings announcement released earlier this morning or on the Investor Relations section of the company's websites Www Dot com.
Dotcom I'll now turn the call over to Jarrod Langhans caused VP of Investor Relations.
Good morning, and thank you for joining our call today I'm accompanied by time Harrington, Our Chief Executive Officer, Jay Wells, Our Chief Financial Officer, and Billy Prim, Executive Chairman and interim CEO Primo water's.
As a part of this conference call. We have included a deck online at Www Dot Com Dot com that was designed to assist you threw out or discussion, but that said Tom will start this morning's call with some thoughts on our company overall before turning the call over to Jay for a discussion of our fourth quarter and full year consolidated financial performance the results of our.
I'll pay services segment.
Your comments on the Primo results that were issued as part of an 8-K filing this morning, and our 2020 expectations before handing the call back to Tom to comment before moving to today with that let me now turn the call over to Tom.
Thank you Jared and good morning, everyone. Thanks for your interest in our company and for joining our call. This morning.
I wanted to share how proud we are with the progress we've made in our transition to a pure play water company that we believe better positions us for long term growth.
We entered 2020 would strong momentum by executing against our initiatives, including the customer experience our customer flights mindset.
Developing new and enhanced channels of new customer additions.
The rollout of our pure flow I O T enabled filtration cooler and overlapping highly synergistic tuck in acquisitions.
The combination I bought progress against these initiatives and the strong momentum in our recent performance.
Sets the stage as we pursue our strategy to become a pure play water solutions provider that consistently drive topline growth and improved margins, while remaining committed to delivering long term value for our shareholders.
And looking at 2019 I'm pleased to report that we delivered solid revenue growth of 6%.
Moving to the impacts of FX coffee commodity pricing and the divested caught concentrate business.
During the fourth quarter, we increased EBITDA to $85 million from $70 million.
22% increase over prior year.
For the full year, we delivered $153 million of adjusted free cash flow, which exceeded our commitment of the 150 million plus.
Let me briefly elaborate on some of our key initiatives.
Our investments in a customer experience are beginning to pay off with retention rate increasing to 83.5%.
And the average life about customer base to 4.7 years in North America, resulting in a historically low cooler churn rate, where we executed a 220 basis point improvement compared to Q4 of the prior year.
Our focus on delivering the hydration solutions, our customers want along with a great experience that is expected by our customers well and enable us to further reduce churn.
We're now focusing our investments on increasing both customer loyalty and revenue per customer by providing appropriate communications tool tools, which allow us to have real time two way communication.
We implemented triggered communications data center, where customers based on their past purchasing behavior as well as more targeted direct marketing.
These activities were implemented in Q3 and are working well.
We rolled out on a new mobile app at the end of the year from current customers, which includes the ability to review your invoice and future orders as well as the last of available products to choose from.
Over the coming months, we will roll out additional updates as we continue to improve and refine on capabilities.
These technology investments and improvements increased ease of ordering for our customers help increase retention and provide valuable insights into future cross selling opportunities.
And in addition to the efforts were implementing a customer experience, we've added growing relevant products to our portfolio to further satisfy our customers hydration needs, including our mountain Valley brand, which grew its top line, 20% on a pro forma basis in 2019.
We remain focused on cross selling case pack water sparkling water and other products to our returnable five gallon customer base, increasing our penetration rate of small pack case water and drove volume growth of over 10% for the year.
Put simply our goal is to give our customers what they want.
When they want it.
Our acquisition of Primo water's will enhance our ability to deliver hydration solutions to a new group of 30 consumers expanding our reach and frequency.
Yeah.
We continue to develop new and expanded channels to drive organic customer growth as an update the E commerce platform, which enables consumers to order and reorder returnable five gal water to an online retailer continues to be tested in Georgia and Florida.
We're making progress and look to expand this program into other markets in 2020.
We're also investing in our digital customer acquisition efforts, which are driving double digit increases through this low cost source of new additions.
Well I'm confident in our ability to generate additional age or the water revenue as a result of this multi pronged approach to growth.
We will continue to went back to drive topline and bottomline growth throughout 2020.
With respect to the higher growth in higher margin category of water filtration. We began the rollout of our pure flow I O T enabled water filtration core as a reminder, there's patented solution will support our efforts in retaining and attracting water filtration customers across our footprint.
Our proprietary filtration technology meaningfully extends the life of the water filter and requires far fewer service interactions, which in addition to reducing our operating costs complements our sustainable platform of products and services.
As we expand out water filtration business, we believe that the pure flow solution will enable future growth from an already predictable and dependable revenue stream and allow us to meet demand for a range of hydration solutions.
We remain a top five player across our 21 country footprint in water filtration and our strategy is to accelerate the growth in arbitration business to an expanded sales force and innovative products.
Finally, we strengthened our north American and European Route density with a number of overlapping tuck ins and as many of you have read we began publicly announcing these tuck ins in order to keep our investors better informed of our good progress.
In 2019, we improved our route density in Poland with an overlapping talk in that provided attractive synergies.
We increased our density in the northeast United States with a couple of tuck ins, we executed another in Netherlands and added the leading age I'd business in Hungary, which included some carbonation technology that will allow us to deliver carbonation within all watercourse in Europe.
Much lower cost than we were previously able to offer.
We will continue to execute our tuck ins in North America, and Europe to further strengthen our core H. ODP business and route density in 2020.
These actions in combination with our revenue growth delivering operational leverage resulting in a 50 basis point improvement in EBITDA margin compared to prior year.
Ralph based services segment and larger than we had previously communicated.
Switching to environmental social and governance.
We're making progress in achieving the environmental sustainability goals, we announced last year as part of our E.S.G. program commitments.
In North America certification of our spring water sources to meet the alliance of awarded stewardship ADW as standards is an integral part of our E. S. T program and we've developed a timeline to begin implementation of this program in 2020.
Leading this initiative is Travis Dorton, Vice President water resources.
Travis most recently it was direct to water resources at DS services and served in a variety of roles, including hydrologist for over 19 years.
In addition to his leadership with the idea of U.S. certification.
Travis will be responsible for managing water resources across cuts business unit to ensure sustainable yield and consistent quality across the company's operations, we're confident in achieving a ws certification for our spring sources by 2025.
Our continue efforts will ensure that our spring sources are managed sustainably to meet water need not only for today, but for decades to come.
In addition, we're focused on obtaining carbon neutral status by 2022 in North America to add to our eight year carbon neutral status in Europe.
As part of this program, we're moving on fleet replacement on route trucks from diesel to propane and where we place 100 diesel trucks with propane fuel vehicles in 2020, which will reduce fuel consumption by approximately 35% for these 100 assets and is a much more environmentally friendly energy.
Yes.
Turning to capital deployment in 2019, we divested the last component of our legacy soda and juice business in February with the $50 million sale of our caught concentrate business.
We continued our tuck in acquisition strategy with acquisitions above the high end of our annual goal of 40 to 60 million.
And we returned $64 million to our shareholders through a combination of share buybacks and dividends.
As part of our ongoing commitment to shareholder returns in December our board of directors approved the new 12 months share repurchase program of up to $50 million of our outstanding common shares and we will execute against this program in 2020.
As I look back on 2019, I'm proud of what our associates accomplished during my first year as CEO.
We're excited about the future of our company and are well positioned to benefit from continuing growth both organically and through tuck in acquisitions across our platform.
We will benefit from the divestiture of the SMB business and the addition of the organic growth that Primo water Corporation will provide and expect to see our overall financial standing improve in terms of our topline growth potential.
Our EBITDA margin profile as well as our ability to generate free cash flow with our new pure play award of focus.
Moving to an update on our transition to a pure play water solutions provider.
We entered 2020 with strong momentum as we aggressively execute our transformation into a pure play Warner solution provider.
We remain focused on successfully completing the acquisition of Primo water, while also smoothly transitioning the SMB business to West Rock Coffee company.
We began preparing for the integration process of the two businesses and are excited not only to welcome the primo team, but to realize the full potential of the combined business.
We're confident we will capture the previously identified $35 million in cost synergies through the integration of Primo and becoming a pure play water company.
Deliver margin expansion and drive increased organic growth as a pure play water solutions provider.
Of course, we're focused on execution in our base business to ensure we deliver the topline growth and the margin growth we expect in this business.
We're truly excited about the opportunity to provide sustainable hydration solutions to growing customer base and positioning the company for continued growth while also ensuring we deliver long term shareholder value.
As an update to the Primo transaction as things stand today, we would expect to close during the first week of March at which time, we would change our name to Primo water cooperation and our checker on both the New York Stock Exchange and the Toronto stock Exchange would change to P. R. M. W.
Moving to our planned sale of SMB coffee and tea. This business had a very strong quarter and they are well positioned for a successful 2020 under new ownership.
We're currently working towards the closing at the end of February.
I'll now turn the call over to Jay who will review more specifics on outperformance Jay.
Thank you Tom and good morning, everyone.
Starting with the quarter because they need to see good top line performance with consolidated revenue of 4%, excluding the impact of foreign exchange.
Sale of coffee beverages, LLC and the change in average cost the coffee.
This performance was driven by customer volume and pricing growth within ATRA deepwater and good price mix and extract growth within our coffee tea and Xtract solution segment.
Operating income increased by $16 million and adjusted EBITDA grew over $15 million R, 22% to $85 million, primarily driven by growth within our route they services segment inclusive of increased customers volume pricing and acquisitions.
The good momentum we saw in the fourth quarter and throughout the year and our route based services segment gives us confidence and delivering another strong year performance and 2020.
Turning to cash adjusted free cash flow from continuing operations in the quarter was $111 million, which included working capital benefits.
The working capital benefit we saw in the quarter, resulting from the initiatives, we implemented to improve our working capital management over the back half of 2019, including improved management of inventory days sales outstanding and days payable outstanding.
Moving to the full year, we saw good top line performance across our segments as consolidated revenue increased by 6%.
Operating income grew 54% to $90 million and adjusted EBITDA grew 7% to $329 million.
Our consolidated results were primarily driven by our route based services segment for growth was driven by new customer additions volume pricing the benefit of acquisitions increased route density and operational leverage.
These improvements were partially offset by the negative impact of foreign exchange.
We were pleased to end the year with approximately 50 basis points of EBITDA margin expansion within route based services.
As it relates to cash we exceeded our previously communicated expectations with $153 million of adjusted free cash flow through the year.
Let me now cover the operating performance of our route based services segment.
Looking at the fourth quarter, well pay surfaces saw revenue increased 4% driven primarily by our home and office water delivery business, which grew in excess of 6% of whats organic revenue growth was 4% and the quarter driven by a combination of customer and volume growth as well as improved pricing.
Gross profit increased 6% to $260 million driven primarily by the revenue growth drivers I, just mentioned and operational leverage which resulted in a 120 basis points of gross margin expansion.
Additionally, we were able to reduce overhead cost and saw SGN, a as a percentage of revenue decreased by 230 basis points, resulting in an operating income improvement of $17 million.
And an increase in EBITDA of 25%.
As we look to 2020, we believe we are well positioned for continued growth within our route based services segment for a customer for life program.
Consumption growth as consumers continue to migrate towards healthy hydration and away from sugary sweetened beverages as well as continuing to benefit from cross selling opportunities pricing and additional growth through our tuck in acquisition program.
Let me now provide a few comments on Primos fourth quarter 2019 results.
For those of you less familiar with Primo their primo businesses, driven by three key categories or channels first the dispenser business, which we consider the razor and razor razor blade business model.
Prima sells a full line up of innovative and stylish dispensers through major retailers and online at various price points.
These dispenser sales helped increase household penetration, which then drive recurring purchases of the two higher margin water businesses.
The razorblade offering is comprised of two water businesses first if the exchange business, where consumers can exchange their empty bottle for prefilled, three or five gallon bottle of purified water.
The exchange business as president at approximately 14000 locations across the U.S. in Canada, and leading retailers such as the home depot, Lowe's home improvement as well as Kroger Safeway and Albertsons.
The second water category is the refill business the refill machines incorporate a multi step filtration process for consumers to refill their own empty bottle and multi gallon formats for as little as 25 cents a gallon.
The refill machines are located at over 23000 indoor and outdoor locations throughout the U.S. in Canada across a variety of retail channels.
Turning to Q4 performance, we were pleased with the results seen during the quarter with all channels in growth.
Combined net sales increased 13% to $80 million driven primarily by the dispenser and exchange channels, excluding sales from the ice assets that were sold in June of 2019 sales increased 15%.
[noise] dispenser sales increased 45% to $18 million due to growth and consumer demand and retailer orders related to certain fourth quarter promotional activities consumer demand, which is measured as the dispenser unit sales and consumers increased 57% to a record.
248000 units in the quarter.
In the exchange business record dispenser sell through helped achieve Primos 30, onest consecutive quarter of same store unit growth of more than 6% and exchange sales increased over 20% $22 million.
The increase in exchange sales and units was aided by an increase and the number of locations and consumer focused promotional efforts, including instantly redeemable coupons associated with the purchase of dispenser and new display and in store signage.
Lastly, and Primos refill business Primo continues to make improvements and refill operations machine uptime localized sales efforts and locations. This helped drive an increase in revenue of 4% in Q4, when excluding results from the ice business, which was sold earlier in 2000.
In a 19.
Pretty much overall gross margin percentage was 24.7% compared to 28% due to a mix shift and dispenser sales and increased promotional spend and the exchange business.
The increased promotional spend within the exchange channel was associated with consumer focused promotional efforts, including the instantly redeemable coupons linked with the purchase of dispenser.
Although the promotional activities when the dispensers and exchange put pressure on gross margins.
These activities generate significant customer growth and will benefit the company over the coming months.
Gross margin as percentage of net sales from the resale segment improved 110 basis points, driven by a 2% increase in five gallon equivalent units, which leverage the fixed nature of certain cost and Primos refill segment.
The strong revenue growth resulted in adjusted EBITDA, increasing 8% to $13 million.
With a solid fourth quarter end the books, we look forward to the continuing growth from Primo as we look to full your expectations for 2020.
As a quick summary, and looking out to 2020 overall, we're pleased with our 2019 financial performance and execution against our guidance.
As we move into 2020, we have built momentum within our route based services segment, where we have a number of growth initiatives working effectively and a robust pipeline of tuck in acquisitions, setting us up well to deliver on our 2020 goals.
Those goals include topline growth of 4% to 5% as well as adjusted EBITDA between 300 and $310 million inclusive of tuck ins.
These expectations exclude our coffee tea and Xtract solution segment, which we expect to divest and the first quarter of 2020 and in turn it would be included in discontinued operations.
These expectations also exclude primo as we will only have a part your benefit of Primos operation and 2020 and the exact amount of the benefit is dependent upon when we close the transaction.
To provide you with some full your expectations for Primo revenue is expected to grow by 5% adjusted EBITDA will be approximately $57 million and capex will be $20 million to $25 million.
In addition, we're expecting to benefit from $7.5 million of synergies and Twentytwenty.
As a reminder, we have scheduled our investor day for March 24th which will incorporate a modeling presentation for the combined entities.
The presentation, we publicly broadcast through our website.
As it relates to our adjusted free cash flow goals for 2020, we expect adjusted free cash flows of $115 million to $125 million.
We provided an exhibit and the back of our press release, which outlines the drivers of our 2020 adjusted free cash flow.
Overall, we expect $300 billion to $310 billion of adjusted EBITDA, including tuck ins around $10 million of cash taxes, and $75 million of interest as well as capital expenditures of around $100 million.
Again these projections do not include any expected benefit of the Primo acquisition, which we will cover during our Investor day on March 24, and it excludes our S&P coffee and tea business.
For those of you who are working on your models SSD contributed approximately $35 million of adjusted free cash flow and 2019.
You were able to obtain the revenues margins and EBITDA for SMB and the exhibits within our press release.
And looking at capital deployment for 2020, we will continue to return funds to shareholders through our quarterly staple dividends.
In addition to our quarterly dividend, we will continue our share buyback program as Tom noted our board of directors approved a new 12 months share repurchase program of up to $50 million of our outstanding common shares and we intend to execute against this program and 2020.
We will also continue our tuck in acquisition program with a target of $40 million to $60 million and acquisitions.
And we plan to refinance our euro debt after the second call date in July.
I'm going to now I'll turn the call back to Tom.
Thanks Jay.
We're very excited about the opportunities that lie ahead of our business, especially our transition to a pure play water solutions provider and in turn into value creation that we will generate for all stakeholders.
As we look at our route based services business, we will strengthen the business to a number of actions that we expect will deliver topline revenue growth of 4% to 5%.
First we will increase net customer growth in both home and office delivery water and water filtration across our 21 country footprint, where the leading home and office water delivery business as well as a top five player with them water filtration across our footprint.
Second.
We continue to experience secular tailwinds in a form of shifting consumer preferences as a consumer continues to move towards healthy hydration and away from sugary sweetened beverages, leading to continued consumption growth.
Third the improvements in our customer experience and in turn our customer for life philosophy. These are supported by improved communications quality customer service and ongoing product innovation.
Helping to drive the Upselling cross selling opportunities in such areas as the introduction of our pure flow filtration technology improved product offerings, such as mountain valley spraying in sparkling water as well as the rollout of our mobile App fourth we will continue to execute our historical pricing actions across our footprint.
And fifth we'll continue our annual talking program.
We'll also focus on achieving 20 to 30 basis points of EBITDA margin expansion driven by improved route density customer mix and customer life.
And a continued focus on sustainability, particularly in the areas of water sourcing and our carbon footprint that resonates with consumers.
As we completed the first quarter of 2020, we anticipate closing on the sale of SMB coffee as well as the acquisition of Primo water's, thereby transitioning to a pure play water company.
Under this new pure play model, we will be the North American market leader at home and office delivery water self service refill retail returnable water or exchange dispenser sales and a top five player in a point to use a water filtration category. In addition, we remain the market leader in at home and off.
This delivery water in Europe, as well as a top five player in the European water filtration category.
This transition builds upon the successful partnership between our DS services, North American business, and Primo and creates a water focused company position to excel and the higher growth and higher margin water categories, where we will be able to offer a full range of hydration solutions to consumers.
When we.
Where and how they want.
The combined company will grow through continued product and service innovation marketing partnerships and highly synergistic tuck in acquisitions as well as the opportunity to reach more consumers to more channels than either cod or primo could have reached on their own.
We also plan to expand Primos product and services across our European footprint, and we expect the transaction will deliver $35 million of cost synergies.
Looking at other financial improvement, we expect the transition to drive accretion to our earnings and we would see our leverage reduced targeting approximately three times post synergized EBITDA, while at the same time, improving our credit profile.
In addition, our business will remain largely insulated from commodity fluctuations as we are vertically integrated in the U.S. have implemented energy surcharges across our entire route based footprint and reuse our three and five gallon water bottles up to 50 times.
Before moving to Q and I I wanted to take a moment. Thank all of our associates without home would not be able to accomplish everything we did in 2019 as well as everything we plan to accomplish going forward.
Thank you all.
I'd also like to thank Jared for all of his efforts over the last five plus years running our corporate IR and FP any programs in support of our shareholders.
As a part of our ongoing secession planning throughout our company. We're pleased to announce the Jared is being promoted to chief financial officer of our European operation.
We wish Jerry well and look forward to falling use continued growth in his new role.
Jerry will transition over the next few months as we will be adding new investor relation leadership, who will focus on both IR and communications. In addition, we engaged alpha IR to assist with the IR function at the end of 2019 and have included their contact information on the press release issued this morning.
Thing as well as on our website.
Alpha IR will not only assist us with our core IR functions, but they will strengthen our efforts in relation to messaging, new investor and analyst outreach and targeting efforts.
Finally, I'd like to thank the SSD team for their efforts this year and wish them well as they enter the next chapter of the company's storied history.
I'll now turn call back to Jared to move us documenting.
Thank you gentlemen, I look forward to continuing to support the business in my new role during the Q today. So that 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 for your time operator, Please open up the line for questions.
At this time I was like to remind everyone in order to ask your question Press Star is on the number one on your telephone keypad.
Your first question comes from Peter Grom of JP Morgan Your line is open.
[noise] Hey, good morning, everyone.
Good morning, I, just want to I just wanted to ask on the initial 2020 guidance.
Just from your standpoint, right now makes on whatever puts and takes.
That would push either dollars or the high end or the low end given its still early in the year have your embedded kind of any Cushing and the Guy and then just quickly on the margin performance. He really strong Q4, how shouldn't how should we think about marketing margin progression as we look out the 2020. Thanks.
Yes, Thanks Peter.
I think the we've worked very hard to be very consistent on delivering against our commitment.
Manifesting itself in performance over the last three or four quarters.
So clearly our goal for would be in the same vein is that our guidance would be numbers that we have confidence that will deliver and you know the biggest single risk is execution and our track record now is one of improving execution over time and multiple.
Parts of our business unit.
Jay you want to take the yeah.
The more the number side Peter you look at art EBITDA for 2019, excluding as Cindy.
Thats 287 million.
I mean, we've given you know historic guidance that you know organic EBITDA growth of 10 million.
Tuck ins five to 10.
So if you put that together you're at 15 to 20 middle of that guidance would be 18 million.
Yeah. The 18 to the 287, you get to three or five right in the middle of the range. The guidance. We've given so that was the math behind the 300 to the 310.
Okay.
On margin, we have guided you to route based services EBITDA margin expansion of 20 to 30, Bips a year and you know we continue behind that guidance.
All right. Thank you appreciate it.
Thanks Peter.
[noise]. Your next question comes from directly sort of TD Securities. Your line is open.
Yeah, Congrats on a a pretty good year guys in some transformational changes and then congrats Jared on your promotion or maybe just following up on on the last question.
I guess, you don't like drilling down on the operating leverage and was really strong. This quarter. Just wondering if you can maybe just add some colors to to some of the drivers there.
Yeah, I mean, clearly at the roll forward benefit of the organic growth and the tuck in acquisitions on the business I think it's more consistent execution across the base operation.
So we had no surprises no Glenn and so we've moved that.
So we're pretty confident.
In the 20 to 30 in our ability 20 to 30 basis points go forward and our ability to consistently deliver on that number in 2020.
And Jay maybe one for you I think you did you did point to the.
Pretty mill adjusted EBITDA of 57 million, but just want a chicken does that include the seven and a half million in synergies or no.
So that that's not so its full year basis would be 57, now that's going to be pro rata based on when we closed the deal, but the seven and a half is fully backend loaded.
So that that will be up when when we see that benefits. So they are on top of.
[music].
To do it and it does exclude going to declare it as adjusted so it does exclude any cost to achieve.
Okay. Thank you.
Thanks Derek.
Your next question comes from Daniel Moore of CJS Securities.
One is [noise].
Thank you good morning, and congrats Jared as well well deserved wanting to maybe talk on it and we have probably have Billy here, maybe just talk a little bit about you know the refill business on Primo seems to have turned the corner. Obviously you mentioned some promotion activity that that's helped but.
Any more color around that and you know sort of the direction for 2020 would be greatly appreciate it.
Yeah. Thanks, Thank you.
We have seen a nice turn into refill business. It took us a little longer than we would've liked to to get our credit card readers in place.
Put together the metrics for downtime and our new routing schedule, but once we got that in place we have seen consistent improvement over the last four or five months.
It is operating well and we feel very good about future.
And the sneak one in for Jay and then jump out but on the cash flow guide for next year, you pulled the screen pretty hard this year on working capital.
You know.
Not in a good way.
The guidance is implied neutral for next year, just confidence around that an upside the downside potential. Thanks again.
I think you've got it right. We did you know I've said before we then experiences from FX headwinds. So in order to meet our guide we did a very good job getting the issues that we've had with working capital taking care of arm. So very happy how we closed the year and you know I feel that it's sustainable what we did so I don't secure C. Any call back next year.
So you know very confident on on flat working capital as we look to 2020.
Hi, good thank you.
Thanks, Dan.
Your next question comes from directly of Canaccord Genuity. Your line is open.
Yes, Hi, guys. Just following up on that last question is there a reason why or can you just help us understand why in Q4, you do tend to get quite adequate at decent sized working capital benefit.
Yes, Eric I think you're looking at two things when you look at the seasonality of the business as we get out of the summer months, which is our busier seasons for for hydration, We and Q3 with you know significant a are.
So that's been part of it to you know as I've talked about our overall working capital management, specifically over in Europe has been a project that I've been focused on and I think you just saw the results of hard work, putting better controls over managing inventory management, they aren't management payable.
I'll come to fruition within the fourth quarter, you know I do not see that being the same cadence this year, but that's really when we saw you know the calling back some issues. We had at the beginning of year with working capital and solve it benefits of the improvements being implemented at the back half the year.
Okay. That's helpful.
And then just in terms of the tuck in M&A. Frank can you just remind us what you're seeing in terms of multiples for sort of a small and medium sized acquisition.
Yes, Derek this is Tom good morning, we see pretty much normal course.
On both sides of the Atlantic as we've we've articulated before the U.S. or little bit lower multiples in Europe is little bit higher up but we retain a good list of opportunities have you seen us execute very aggressively in there and the most recent past then you know we have a good list of opportunity as we move for.
I would add generally think the same Matt Matt that we've experienced historically.
Okay and then just last one for me just in terms of.
You know the synergy targets here for Primo, obviously, it's a big number that 35 million.
Just remind us again I know you answered on the on the previous call that just the the buckets, sorry, or where you get where you expect to get the most leverage on the synergy targets.
There is really three buckets. So it you know think largely back office.
Which is the redundant corporate cost than customer service and.
Call Center in and that which is I don't have an in front me, but the order of 20 to 25 million of the number.
Then there as you know opportunities in procurement.
So bottles and boxes and Leds and all the like have you know similar components that we buy on both sides of the business and then what I'll call logistics, but think facilities since logistics and facility. So all the facilities on a pretty most side, which are largely redundant or very close to what is typically a larger.
Yes facility.
The teams have engaged already in terms of the developing a plan. So we remain confident on the 35 and you know obviously, we're focused on the first 15, which gets us to the seven and a half man we expect in calendar twentytwenty than has been pretty much been very good at working with US early there we already have robust.
Plans in place we've got teams put in place charters put in place for every Workstream, we've already identified more than the phase one first tranches as Tom.
Outside of the first 59 to make sure we delivered the seven and a half this year.
But we also have good plans come into place to deliver the whole 35 by the end of next year and that's how you know how we will end up delivering on you know basically a flop over a 10 million and Twentytwenty too.
Got it okay. Thank you very much.
Thanks Derek.
Your next question comes from Johns I'm part of C or D. C. Your line itself.
Hi, James Good morning, guys.
Alterations morning, well, that's what the filtration side of the business in particular, how the launch of pure flows been received just generally your thoughts in the segment.
And when you add it filtration customer is it typically a new customer out or is it someone switching from existing H.
Right.
Sure. We we started the soft rollout of pure flow in Q4.
We're pleased with the early result consumer feedback.
Frankly been better than we would've hoped in terms of that technology and the solution. So we're quite pleased.
Most of the customers aren't new although we are also converting our existing filtration base to the new technology, because we think it'll help with retention as we bring them into the let's call. It the 21st century from a technology perspective, we don't see any changes and people converting from filter.
In addition to our HIV business, we have the lowest quit rate we've experienced in my memory and the highest retention, which says our Asia de bottle water business is more stable than it's ever been frankly, so we're quite confident about that and our plan is to participate in a growth you know.
Of water filtration, it's real and we'll do that across our entire footprint using the innovation of the technology.
As well as you know we benefit from Primo who has good water filtration technology. So we believe will be in a stronger place infiltration one more finished with the integration than today.
Okay. That's helpful. Thanks, and then coming back to the guide when it comes to the 4% to 5%.
Continuing operations revenue growth expectation can you talk about the split of for your expectations on the split of organic customer adds versus.
More pricing versus talking contributions.
Yeah, I think it'll be the historical numbers, we've shared which would be I think 3% organic think 2% target is really a way to think of that and that'll be wrong, but it will be you know a pretty good sense of where it'll come from so we expect the base business to grow around three and then we'll execute tuck ins around 2%.
Yeah, and ask you say the levers the three things we talk about they vary by quarter, but you know it those are three different levers that we pull 'em, we saw no good pricing and customer growth.
In the quarter and volume a customer growth is kind of hand in hand.
And we expect that to continue and we'll continue to price right. So it's those three levers are all part of our plan and included in that 3%.
2020, Yeah, and why we're on it you know one thing did what I mentioned on the call was seen a nobody's asked about Q1, 2020, and what that might look like and I did want to add a few comments on that so if you look at 2019, excluding Essen D., we had approximately 400.
20 million of revenue and 53.7 million of EBITDA.
In Q1, again, excluding SMB and Primo, we'd expect to see 4% to 5% topline growth and 4% to 5% EBITDA growth in the quarter and the reason why you're not seeing more leverage down the piano. It is a shoulder season, it's one of our slowest times of the year and it's one we're investing in the summer season. So I just wanted to make sure we talked a little bit better.
One before we got off the call.
Okay, that's great.
Yes, Thanks John.
[noise]. Your final question comes from Derek will sort of TD Securities Your line itself.
Yes. Thanks, just one one more for me I just want to I guess confirm what 29 teen EBITDA was for Primo.
Oh it was.
The.
That was 51 million.
51 point.
Got to pull up there.
4.3 51.3, thank you.
Thanks, guys.
Great. Thanks there.
[noise] that was our final question for today I will now return the call tour for servers.
Thank you all for joining this Q4 2019 call have a good day.
[noise], ladies and gentlemen. This concludes today's conference call. Thank you for participate if you may now disconnect.
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