Q1 2020 Earnings Call
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Ladies and gentlemen, this is your appetite here your comp which is scheduled to begin momentarily until that time two laterals I can be placed on old. Thank you for your patience. Please continue.
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Oh water corporations first quarter 2020, <unk> earnings conference call.
All participants are currently in listen only mode. This call will and no later than 11 am eastern time.
Paul is being webcast live on problem I was the website at www dot from a water core 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 operations performance. These statements should be considered in connection with cautionary statement and disclaimers contained in the Safe Harbor statement in this morning's earnings press release and.
The company's annual report on form 10-K, and quarterly reports on form 10-Q, and other filings with Securities regulations. The Companys actual performance could differ materially from these statements and the company undertakes no duty to update these fording statements itself.
Expressly required.
Applicable law.
Reconciliation as any non-GAAP financial measures discussed during the call with the most comparable measures in accordance with GE 80 is included in the company's first quarter earnings announcement.
At least earlier this morning are on the Investor Relations section of the company's website at Www Dot com a water core dot com I'll now turn the call over to Brian Coleman Alpha IR promised investors relations service provider.
Good morning, and thank you for joining our call today. Unfortunately, accompanied by Tom Harrington re most chief Executive Officer, and Jay well Remotes, Chief Financial Officer as a part of this conference call. We have included a duck online www Dot Umo water Corp.
That was designed to assist you threw out or.
Almost for today's call with an update on the business impact of the ongoing.
The actions we are taking.
And Jay will discuss our first quarter consolidated financial performance, our liquidity and cost containment efforts and the first step 2020 expectations before handing the call back to Tom to provide a long term view on the company had a few.
As a reminder, we sold our SMB coffee and tea business at the end of February and as a result. This is my husband classified within discontinued operations.
Mark We acquired Primo Water Corporation, which included assuming the Primo name that's what wasn't remote.
Then ill prepared remarks, we'll be discussing our continued operations, which will incorporate legacy Primo business for the month of Mark as well as exclude the SMB.
With that let me turn the call over to Tom.
Thank you Brian good morning, everyone.
I would like to begin by extending my wishes Oh.
I sincerely hope everyone is safe and healthy.
As it relates to the safety of Barr associates and customers, we've undertaken in hand, social distancing guideline implemented deep.
The aggregate employee ships.
Provided gloves, Maskin Sanitizers and offered work from home options, where possible, including in a number about customer care soon.
In addition, we've created international crisis management teams working together to ensure that our team members operating and safe and secure environment.
We are implementing and updating our operations for the latest safety recommendations from the CDC and though.
As a result.
Our teams continue to work to service our customers safely across our entire operation.
I cannot think like teammates or not.
Their efforts as we work to provide an essential product to customers across our 21 country footprint.
Many things in a world have changed the one thing is remain constant and now that the desire for our customers to continue to receive say high quality drinking water from our team.
We've continued to deliver millions of gallons of water.
And we're proud of the commitment that we've seen from our associates.
Moving to oppose core.
I'm pleased that our result, well ahead of our expectation.
Including a one month contribution from the legacy Primo business that we acquired at the beginning of March our consolidated revenue from continuing operations was 11% higher than last year.
Adjusted EBITDA was up 31%.
Excluding our divested businesses, our adjusted EBITDA margin was 14.8%.
200 basis point improvement versus prior year.
And representative about pure play water business ability to leverage grow into margin expansion.
Underlying to strong consolidated performance, our North American water solutions business revenue was up 9%.
And adjusted EBITDA was up 37% compared to the first quarter of 2019, which excludes any contribution from the legacy Primo business, we acquired at the beginning of March.
In March the legacy Primo business drove a 37% increase in revenue and the 96% increase in adjusted EBITDA on a pro forma basis.
By the significant increase in retail sales experience of course, the U.S. market, you know water exchange business.
As you might expect.
Our European Award a direct business was negatively impacted by the pandemic.
We experienced closings of commercial customer locations earlier and more broadly than in North America.
Our Eaton Division.
European operations represent approximately 20% of overall company revenues increased revenue by 1%.
Benefit of talking while adjusted EBITDA was down $4 million in Q1.
Our performance in the first two months of Q1 was solid and tracking in line with our expectation and several cases better.
And our ongoing investments in the customer experience are beginning to pay off.
With retention rates, increasing in North America, resulting in a historically low distance in churn rate, where we achieved a 260 basis point improvement compared to prior year.
Our focus on delivering the hydration solutions, our customers want along with a great customer experience is working.
And is reflected in our reduce churn rate.
We achieved a 5% topline growth expectation adjusted EBITDA was above expectations.
Our EBITDA margin grew as a result, the volume leverage as well as efficiency initiatives the company executed.
We weren't excellent position to meet or exceed both internal and external expectations for 2020.
Importantly, the underlying performance of the business is a strong indicator that our strategic decision to transition to a pure play water company is that correct path forward.
We then moved into a period of uncertainty.
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As many European countries made it difficult decision to lock down.
All but those businesses identified as essential services closed in several countries in compliance with local government mandates.
These actions negatively impacted adjusted EBITDA, although our European business in Q1.
Yes, that's a pandemic have been nothing like them recession from the speed of change perspective.
We felt the impact over the course of 10 to 12 days rather than a more gradual slowdown typical of a downturn of two to three quarters.
Management has taken a necessary cost actions, although it's certainly takes more than 10 to 12 days to fully implement particularly considering the various employee legislation and work councils course on footprint.
Jay will provide more color on the actions that we implemented during his prepared comments.
Well managing through the revenue pressure within our commercial customer base, we do see many opportunities will be at home consume because I want a direct watery, Phil what are the Spencer and water exchange solutions.
As people about social distancing guidelines no contact home delivery of all products has become more important and will likely increase in importance to consumers.
One of the best examples we see developing isn't a program with a large ecommerce retailers.
The customer decided to suspend all home service offerings, except for a bottled water service.
A decision we understand was based on customer demand and their request of water delivery.
We're currently offered water delivery through this retailer imports of Georgia, Florida, Texas, and Connecticut, and expect to extend the program across a U.S. footprint.
As consumer behavior continues to change as a result of the Corona virus.
We expect that no contact home delivery.
And ecommerce capabilities will be vitally important.
We are well positioned and prepared to meet these changing consumer demand and to participate fully in the groping channels will likely provide.
We're pleased with the efforts, we've executed, but they're not custard customer experience initiatives.
Including updates to our website.
The initial release about mobile App.
The extension of the mobile up across the U.S. This week.
Ongoing efforts to reach consumers with our product offerings whenever wherever and however, they want it.
In addition to expanding our ecommerce programs, we will accelerate to core growth initiatives.
Sorry.
Increased penetration of European residential base and the second is to expand a water refill watering teenage awarded the Spencer for our model recurring razor razor blade revenue model to your.
As a leader in pure play watered solution. We believe that we are uniquely position to successfully implement these initiatives as a result of our technical know how.
Dispensing equipment expertise.
And our footprint.
These actions you provide us with future profitable growth and better balance within our customer mix of course, our European business.
We like many of you a following the government mandates closely are beginning to see encouraging signs as local governments in both Europe and North America are implementing early stages of return to work plans.
As we move past this crisis.
But the deliver margin expansion and drive increased organic growth as a leader in pure play water solutions.
Our transformation and the strong business momentum we carried into 2020.
Have simply been delayed by this unexpected an unprecedented event.
The fundamentals of our business was strong.
And there are long term industry tailwinds in consumer behaviour trends that we expect will benefit our pure play water business Bob.
We remain equally confident in the opportunity to provide sustainable hydration solutions to a growing customer base.
Positioning the company for continued growth.
While ensuring we deliver long term shareholder value.
Before my closing remarks.
And opening the call for your question.
The turn the call good as Jay will elaborate more on outperformance of cost reduction initiatives, our capital expenditure expectations as well as our strong liquidity position Jay.
Thank you Tom and good morning, everyone.
Starting with the first quarter, we began the year with another quarter of strong topline performance.
Consolidated revenue from continuing operations was up 11%, including a one month contribution from the pre more acquisition.
If you exclude the revenue contribution from the Primo acquisition, rather it was up 6% compared to Q1 thousand in lighting.
The revenue growth was driven by customer and volumes.
As one of its improved pricing dynamics within our water direct business.
Adjusted EBITDA from continuing operations was $70.4 million, a 31% increase from the first quarter of 2019, and adjusted EBITDA margin was 14.8% an improvement of 200 basis points compared to last year.
One month of operation for the legacy Primo business contributed $7.3 million of adjusted EBITDA in the quarter.
Eating that contribution adjusted EBITDA was $63.1 billion, an 18% increase compared to Q1 2019.
The increase adjusted EBITDA was driven by strong customer growth.
While you blow better pricing as well as tuck in acquisitions and the benefit of operational leverage.
The first few months of the first quarter saw solid performance that met or exceeded our expectations.
Our new pure play water business and operations, we're off to a strong of a start as we could have hoped.
Over the next three weeks or in March we saw good performance at our North American operation.
We ended the month with our direct customer base between 1.8 billion for the first time ever fueled by residential customer growth.
On the other after the spectrum, our European operations came under pressure as result of Cobot 19 closures.
Please remember approximately 80% of our total revenues generated outside of Europe.
And the first three weeks of April revenue from our commercial customers came under pressure as North American gas issue stay at home or.
But over the last couple of weeks, we've seen trends start to improve as businesses have started to riocan both in the U.S. Angela.
As a reminder, roughly 60% of our total $2.1 billion revenue is generated from a residential customer base for the at home consumer.
Our north American residential customer base has increased by high single digits residential returnable volume up over 20% during this period.
In addition, we continued to see solid growth within our legacy Primo exchange business, which was also up over 20%.
Offset the revenue pressures caused quite a crisis cost containment efforts became a key focus I.
I think it is important to reiterate that we benefit from a highly variable cost structure that enables us to react to changing business conditions.
Most of all operating costs fall with en route delivery sales marketing and back office.
Other words, it is largely labor cost and we have reduced headcount by over 20% over the last couple of weeks.
As far as production costs are concerned and Europe, we source roughly two thirds of our finished goods water products from third party co Packers.
As a result, our production costs and you're also largely variable.
Scaled back on all discretionary spending such as marketing and sales expenditures.
We bought our capital spending plans in markets, where we have seen the sharpest drop and the bad, particularly with commercial customers and Western Europe.
Capital expenditure plans for our residential or at home consumer which includes residential water direct customers as well as our legacy pretty much business remained unchanged as demand remains healthy and growing and these areas.
Turning to our liquidity position and the health of our balance sheet. We ended the first quarter with a cash balance of over $100 million and available net borrowing capacity on our cash flow revolver of just over $200 million.
For a combined total liquidity position of around $300 million.
During the second quarter in an abundance of caution we borrowed approximately $170 million on our cash flow revolver in order to meet the liquidity from over to our balance sheet.
We do not currently expect utilize these funds, but wanted to ensure we secured the liquidity given the uncertainty associated with the crisis.
We ended the first quarter with a pro forma last 12 month that leverage ratio of around 3.4 times.
We continue to target a post synergy net leverage ratio of 3.0 times on that note, we still expect to capture $7.5 million the cost synergies and 2020.
$18.5 million at 2021.
$10 million and 2022 for a total of $35 million.
Most of our synergy capture will come from GSK and back office functions, such as finance, whereas in collections as well as such areas as customer care centers.
Public company costs.
That means we have a clear line of sight into these cost reductions and they are firmly within our control. These efforts have already been put into action and are progressing well.
From a capital allocation perspective, you will continue to take a balanced approach and closely monitor our priorities and 2020.
As part of our efforts to preserve cash we have placed a temporary hold on our share repurchase activity. Although in Q1, we did with purchase approximately $25 million of stock under our share repurchase program and $7 million much softer related to satisfy employees tax obligations.
I'm sure based awards.
We remain committed to pay in our quarterly dividend and we believe we are in a unique position to capitalize on the current environment and our search for quality M&A opportunities that fit within our existing model.
We do not however have plans to execute on any tuck in acquisitions and the next couple of months given the current travel restrictions.
And looking at our debt other than our cash flow revolver, our debt as long term in nature, whether outstanding debt balances not due until 2024 or thereafter.
As our senior notes first maturity date since July 120, 24, and looking better covenants, we are comfortable with how our business is operating in this environment and our ability to continue to have ample coverage.
As part of the ongoing oversight of our business. We have performed multiple worst case stress tests analysis on our operation, including the impact to our business the crisis extended through the end of 2020.
And even under these circumstances, we wouldn't be cash flow positive and continued to be in compliance with our covenants.
As I noted during our Investor day, the names that covenant that we watch as a minimum interest coverage of three to one adjusted EBITDA to interest.
At the end of the first quarter on a last 12 month pro forma basis, we had coverage in excess of 4.5 times and we had become even more confident of our ability to manage through this prices as we have seen a number up markets begin to reopen across our footprint.
As a quick summary, and looking out to the rest of 2020.
Overall, we're pleased with our first quarter performance and the strong underlying trends of our core businesses.
As we move into the second quarter macroeconomic conditions continue to be impacted by the pandemic.
Nonetheless, we are very confident that we possess the balance sheet strength.
Variable cost structure excess liquidity and skilled management teams necessary to successfully navigate this business environments.
Looking ahead, we currently expect second quarter consolidated revenue from continuing operations to be flat to slightly down.
We would expect revenues in the second quarter to be between 430 million and $450 million.
On a consolidated basis.
Taking a conservative position and models or water business down 8% to 10% as the increase in residential customer demand are mitigating some of the pressure isn't the commercial channel.
Water filtration bound 3% to 5% and coffee services down 60 plus percent. That's it is a commercially driven channel, resulting in an overall decline for the quarter on a pro forma basis around 15%.
We now believe a first half adjusted EBITDA will be roughly a $140 million an improvement what we provided during our investor webcast in March thanks to a strong first quarter and contribution from the legacy Primo business as well as our operating expense reductions.
Kind of Q2 perspective that would result in adjusted EBITDA of approximately $70 million.
Our estimates were developed using the assumption that most business closures would continue throughout Q2. However, we are starting to see trends that are better than what we forecasted and that is why we believe we will be at roughly $140 million of adjusted EBITDA for the first half of Twentytwenty.
As we think about the full year, we will wait until our second quarter results call before providing specific guidance beyond the first half of the year.
Once we move past this crisis remain confident in our long term expectations, a 5% revenue growth.
20 to 30 basis points of EBITDA margin expansion per year.
$35 million of cost synergies to be realized through 2022.
$12 million to $15 million of annual organic adjusted EBITDA growth as well as $5 million to $10 million of additional EBITDA annually from accretive tuck in acquisitions.
Although we would not expect to see our business to deliver on the 5% topline growth and the back half of the or we should benefit as we come out of the crisis as it relates to adjusted EBITDA and EBITDA margin expansion into the cost initiatives and operational changes that we have made that will benefit us as consumers.
Effects one.
As a result, we should be able to move back to our long term EBITDA growth algorithm at some point this year.
I will now turn the call back to Tom.
Thanks Jay.
But you just heard Jake cover.
We performed well in Q1.
In order and a strong liquidity position and are confident that are highly variable cost structure.
The to generate free cash flow and the flexibility to respond quickly could changing demand dynamics across the markets we serve.
As we entered the second quarter, especially focused on a handful of key priorities.
But wall he will prioritize the health and safety of all of our associates and customers.
We will continue to invest in our residential water direct markets as we are seeing considerable growth in these channels as consumers adapt to the current environment.
We plan to accelerate our extension of our water refill Warren exchange and water dispenser businesses in Europe.
We will continue to evaluate our cost structure seeking to identify additional non core cost reductions.
In response to changing market dynamics to enhance margins and.
We'll continue to manage our free cash flow expecting generate sufficient free cash flow.
Fund our stable dividend.
And highly synergistic tuck in acquisitions, while maintaining compliance with our credit agreement and covenants.
As Jay noted.
We expect our consolidated Q2 revenue from continuing operations be flat to slightly down year over year.
And expected finished the first half of the year with adjusted EBITDA of approximately $140 million market conditions are changing by the day.
And we view these forecasts as fluid targets.
But we will continue to offer as much transparency as conditions allow.
The crisis is unprecedented.
And at the same time it is placed on business in the center of an essential need for the consumers and customers that we serve and that is providing quality they healthy hydration customers whenever wherever and however, they want it.
Our team is committed to not only serving our customer base, but we've developed plans to expand our solutions across our footprint over the coming years.
Over the longer term, we remain optimistic about the new and improved operating model that a pure play water strategy enables.
Under normal circumstances, we would expect gold business to grow its top line by around 5%.
And excluding synergies.
I will pure play awarded business is expected to drive 20 to 30 basis points of EBITDA margin expansion per year.
I'm optimistic that this growth algorithm will be enhanced with the expansion of our products and services over the coming here.
As we look to the back half of the year.
It will be difficult to get back to a 5% topline growth overnight, we're in a single quarter, but with the significant operational changes we have made throughout our business I don't see why we would not work back to our long term algorithm as it relates to adjusted EBITDA growth in the back half a year.
In terms of both organic EBITDA growth and tuck ins.
I believe that we will remain cash flow positive this year provide any cash to support our dividend.
And execute highly synergistic tuck in acquisitions when the time is right.
Clearly, we continue to believe it or improved financial profile.
Improvements in our customer experience.
Our customer for life philosophy, and our continuing drive to improve the average customer lives and retention rates across the business.
When you look beyond the on certain near term environment.
It should be clear to see why we are optimistic about the opportunities that lie ahead for our business and in turn the value creation that we will generate for all stakeholders.
Under our pure play model, we all the North American market leader in direct to consumer water service water refill worry exchange wanting to spend through sales and a top five player in the water filtration category.
In addition, we will remain the market leader in direct delivery water in Europe.
As well as a top five player in European water filtration category.
We look forward to bringing all four razor razor blade model to your.
Before moving to culinary <unk>.
I wanted to take a moment the bank all Barr associates.
Each day I continue to grow more impressed by our team and the selflessness They show our valued customers in an unprecedented environment.
We're incredibly lucky here, a premium god, such a dedicated workforce.
We will now I'll turn the call Dr., Brian to move Us acumen.
[noise], thanks, Tom or in the queue and eight to ensure we can hear from as many of you as possible you would ask for a limit of one question and one follow up per person. Thank you for your cooperation operator, Please open up the life of course.
At this time, if he would like to ask a question Hi Star and the number one on your telephone keypad. That's star followed by the number one on your telephone keypad, well posture, just a moment to compile the culinary roster.
Your first question comes from a line of Derrick lots of right.
Other.
Good morning, Dark Tom Ajay here.
The last three or the started I isn't me can you hear me yeah, yeah. Okay.
[laughter] dark away [laughter], when you're talking to final [laughter] exactly.
[laughter] I was wondering if you can maybe just talk about the topline for a second obviously very strong performance. So I know you did point to increase pricing I was just wondering if you could talk about how you're able to get pricing through given the economic dropping and secondly, how much of this strength, which you.
Attribute to the pantry stocking.
Yeah. It's a good question two questions actually.
So if you think about our business normal course in the water direct business in the first couple of months and we were quite pleased than we'd shared some of those numbers pre cove. It if you will.
So that continued in place normal course that would include pricing.
We have not stopped pricing through particularly on a residential customers. Obviously, there's some commercial customers close down.
And you know there was likely.
For sure some stockpiling, particularly as each of the shutdown stay at home waters incurred Didnt all happened at the same time depends on where you were up but as those stay at home orders were extended.
Any of the stockpile that when I went in either through off legacy Primo business through exchange your direct from the water direct business the at home consumer.
Finished a product because in April so I think we said enough prepared remarks, we continue to experience 20 point 20, plus percent growth in both residential and Primo business, which says that there's a normal flow through a borders and stockpiling is behind us.
Okay. Thanks for that I'm hopeful and maybe one last one for me to Q2 from a seasonality point of view is typically stronger for your guys. So.
Maybe if you could just help me frame that with the slightly more expected.
Actually.
[laughter] he has not yet yeah. I mean, you really you, yes, Q2 to actually get into the summer season is normally a stronger month and you know I set forth some of our forecasts expectations.
You know that we based our forecast model on.
Please keep in mind. It's you know we are being conservative in our projections, let's let's not get over optimistic on the topline and make sure we're taking enough cost out to maintain our profitability in our liquidity.
But you know looking at April for example, I just got a flash from our North America business, which is our largest business you know there their revenue came in 5% better than forecast.
And so did their EBITDA and that's why we're now say that you know we're comfortable with a 140 million of EBITDA in the first half of the air So it'll be very concerned on the topline and our forecast in order that we're taking the right amount of cost and if we over deliver on the top line as we did in April with with North America, where over deliver on the bottom line.
Yeah, Derrick I think you know hopefully you see a track record that says <unk> were consistently meeting and beating by a little over the last few quarters. So.
Also being conservative because this thing changes every day. So it's a combination of our confidence that we'll do what we said at a minimum.
Thanks for that gentlemen, congrats on a great quarter.
[noise] X darker.
Your next question for me line I've Peter.
[laughter].
Hello, Peter.
Hey, good morning, guys and congrats on a great quarter [laughter].
Your your families are safe.
Thank you they are.
[laughter]. So just just quickly just more housekeeping does the Q2 revenue guide of 432 to 450 million include the impact of FX or.
Yeah. Overall, you know, we're not thinking a lot of ramifications on FX. So there is no FX built there at maximum could we see another half a percent of FX headwinds, but at the right. Now you look in the quarter that we just closed FX had very little effect in our forecast has done.
Okay.
Okay. That's helpful. And then Tom I, just was hoping you could elaborate on your second half comments.
I wish I kind of heard this you don't expect revenue to get back to me.
But.
Some of the cost actions you've taken as you do anticipate a return to mid single digit EBITDA growth for the back half of your did I hear that right.
You did.
So you know we took a we didn't get them done as I said and 10 to 12 days, but we've essentially in less than four weeks executed operating expense cuts that enable us to get back to the EBITDA algorithm and expect to expand on margins and then frankly.
As it recovers, which you know we see some some signs of hope coming back as people reopened country by country segment by segment that will be judicious on managing the cost and the revenue on a go forward basis to make sure that we frankly get the spread and return to in short order.
There you know sometime before the year adapt to our normal EBITDA algorithm.
Okay. That's all I just quickly I mean.
I think there's kind of thing some confusion just in terms of what the true right pro forma basis, our for some you know for Q1 fixture, but maybe just.
Level, what does that kind of right basically working off of for the second half of this year.
For the second half of this year, Oh theater, throwing a little bit of a curve ball [laughter].
[noise] pro forma for the second half of the year [noise].
Yeah, we don't actually I don't have that handy and you know we haven't provided any guidance on is on the second half yet and frankly, it's because it's such a fluid situation that you know as we get through the second quarter. We'll we'll have we'll off from what we do in terms of beating that half one and then have a much cleaner.
Line aside about what our expectations our country by country.
You know because it's still changes largely positive, but there's a negative here are there to frankly in terms of delays of openings right. So and we and we also have a couple of that's you know virtual events set up throughout the quarter and were provide updates on you know how we're seeing the recovery and a little bit more light on how we're seeing the back half of.
The or as we get through this quarter.
Your next question.
On the line of Daniel Moore.
Good morning, gentlemen, thank you for the color and taking the questions.
Born again area.
Very well thank you maybe just in Europe.
You know you obviously talked about things starting to open back up there maybe just talk about the volume cadence we've seen thus far in Q2 I know you provided a lot of color in a lot of number self to go back of transcript and if you're repeat them I apologize, but you know.
Kind of where we're volumes in April and what have you seen more recently in terms of those volume trends. The last couple of weeks. Thanks.
So you know we go back it shut off pretty quickly in middle of March but it varied by country right. So the numbers I'll give you or an average of an average of an average over 18 countries.
Because they're not all the same and it's roughly 40% is how we're looking at it in our fault words case forecast for Q2.
And you know as an example, Sweden is normal course, because I never really close.
Switzerland was the first country to creep back in.
The business and we see the trend bottom out.
I don't want to say trough, but I believe and the cases, Switzerland, we probably hit the Charleston, It looks like wants to come back not meeting play, but look we watch the volumes every day, so we're pretty close to how they turned out but the other side as a country like Spain just extended for another 30 days there stay at home. So it's a balance of all of those.
Oh, you know that the news it sounds like the UK make an announcement either Sunday and Monday, I don't know what that announcement will be.
But that will certainly have an impact on a go forward. So hopefully that provides some color average you have an average of an average but it looks like it wants to improve versus that 40%, which we should know remark I think what's <unk> average average Q2 were forecasting revenue U.S. volume that's a revenue number about four.
40% down, but you know weve, Tom and I get together with these guys on a regular basis weekly or more often and everybody is at least meeting are trending a little bit above that through April.
Okay. So just to clarify that 40% or as a as a revenue forecast for Europe for Q2.
In April was around that level, a little worse than that.
Overall, you know each each core months is a little different but I'd say the month of April they're trending a little bit better than average at the average Kevin talked about.
And that's I don't want to quota Greenshoe, but you know we're seeing some signs of life that at a better than what we had originally expected.
Your next question comes from the line of Derrick Daily.
Are there Anglo dark hey, guys good morning.
Okay. Just a question just in terms of commercial and residential I'm sorry, I may have missed this just in light of the numbers that you guys have been speaking about but did you guys mentioned the difference in growth rates that we've seen there and maybe less focused on North America for a second.
No. We gave you a couple of numbers right. So what we've seen in our residential business in April was about a plus 20.
And our legacy Primo exchange business at about plus 20, which is what we've shared and then you said North America, but in Europe, It would be a little bit better than 40% on all those numbers are the latter is on revenue the others are on volume the first two.
And that was sorry that was for April right.
Yeah. That's the first few weeks of April you know bulk April.
Okay. So would that make it then again when we think about just read Asbury residential versus commercial split in North America. You know were residential is I believe 60% of your business, 40% commercial.
Are you seeing that residential growth offset the declines I would assume that you're seeing in commercial.
Not good well, it's actually the opposite it's you know, 55% commercial 45% residential.
We have the at home at Yeah, and then we have the at home.
For Primo right and the residential growth is mitigating the impact on commercial so I would say mitigate not offset but it continues to grow and then we do get the benefit they benefit from the at home consumer which is you know could be buying water refill.
Filling it themselves or using the exchange model, which are ways for us the all counter balancing the pressures from the commercial.
Segment.
Does that give you the answer you're looking for there.
Overall, yes commercial in the North America is down your net commercial against just the residential direct it is a negative number not a significant and my prepared remarks, you know I said overall, our water direct business is down about 8% to 10%. That's a combination of the 40% in Europe that we've talked about.
While the growth in residential and North America, we've talked about and some offsetting decline and the commercial in North America.
Your next question comes from the line up Mark Peach tree.
Hey, good morning.
Hello, <unk>. So I just wanted to ask what the cost base you mentioned, the 20% I think roughly headcount reduction wonder if you can just give a bit more granularity in terms of the aspects of your business, where that was mostly weighted if it was mostly routes or mostly in admin and at the same time I guess you're just.
More broadly like you've been investing in people over the course of the last couple of years could you just talked about how you balance that going forward is as you know you expect revenues to rebuild and stabilized over the course of the next few quarters.
Yeah. So.
20% or so head count reduction it will vary by market, So where there is a bigger revenue declines we adjust.
More aggressively.
And it is a reduction in route.
For a consolidation of routes across the footprint because everything has been impacted it would then have a.
Domino effect into things like the warehouse.
I would have an impact in production.
Right and production could be head count could be overtime management could be shift changes.
So if you think of the whole forward route side production all of that has been affected we have reduced administrative support and some of the DNA for sure.
As we right size to the current realities of revenue and we have a reduced sales head count.
Because if you think about.
Small commercial isn't opened its not a terribly productive.
Use of our finite resource step salespeople knocking on doors that aren't hope.
As we think about go forward now Alternatively, we are investing in online any internet. So we see a growth in online no contact delivery. We also see some benefits on E Commerce and that's all part of our go forward plan both.
In North America and on the other side.
And then you know in <unk>. The other thing that's important is in the U.S. as an example for those sell people. It's a lay off and recall right. So we would you know as this comes back and well be prudent we would recall those folks and hopefully they'll come back on the payroll.
So that we can ramp up appropriately when the time is right.
So that's really our approach now of course, where we're accelerating our investments in the Primo legacy Primo platform.
The to see some opportunities in Europe.
Okay. That's helpful and then.
You know in terms of but in terms of energy costs in the lower oil price I know you guys have the energy surcharge formula in your customer contracts, but what's sort of impact.
It doesn't know what does the lower oil price on your operating costs kind of going forward, maybe Q2 specific and learn and balance to the here.
Yeah. So oh, we haven't disgusted balance of the yet, but you know a Q2 will have a lower energy surcharge a portion of it because of course fueled the rest is a component.
The energy surcharge or the other input and certainly part of our operating cost would be reduced by the benefit of lower fuel costs right and that's that's all in.
Are you know forecast if you will for Q2.
Well. So we'll also frankly drive a few less miles as we consolidate these routes on that basis. So.
So, there's some cost savings and baked into our numbers.
Okay. That's helpful guys. Thanks, all the best.
Yeah. Thanks Mark.
Your next question comes from the line up Peter.
Hey, Thanks for taking the follow up I just wanted to ask about future.
I know you mentioned the guidance reflects some conservatism in trends.
Plan through April, but I think it'd be helpful to kind of understand what are you assuming.
Operating environment standpoint, and your plans for man.
As we think about things to look for.
Sure the corner thanks.
Yeah, I mean, yeah, Peter as Tom said I think we've adjusted our cost structure that you know we're planning.
Even though we don't believe it that you know this could be the new norm going forward. So we've taken the cost out to maintain our profitability to grow our profit under this current reduce revenue we've done it and the right way so more layoff recall, so as we see the topline come back we will start bringing the cost back but.
You know with it in our model if if the forecast you know is that we've taken a a 15% decline in revenue top line, we've probably taken 20% of cost out in order to maintain our profitability and as we see the business come back as we see businesses reopen we will we will start adding back.
Back the cost that we have but we're going to be very cautious as we do so to make sure. We don't put costs backend when when the crisis isn't fully over.
Okay. That's helpful. Thanks.
Thanks Bill.
Your next question comes from the line of Daniel Moore.
Hey, Dan. Thanks, first let me sneak one more interest in terms of capital allocation in the past you. You know you recession playbook has been to increase tuck ins versus internal marketing what would you need to see in terms of either revenue stabilization or.
Leverage where would you need to get down to to be more comfortable in executing that playbook, a little bit more aggressively.
Yeah, I'll I'll answer the first part.
Right now we can't travel so of course, we would be mindful of you know restrictions to do appropriate due diligence, but we believe that similar to prior.
Economic opportunity, they macroeconomic or downturn.
That it'll take a couple of quarters frankly to to flush out new opportunities that you know they'll though and potentially unfortunately feel the pressures of this quarter and the next.
And then we think there'll be a robust list of of opportunities than we have an existing pipeline.
That you know we've held off on frankly, right now because of those travel restrictions and you know the inability to appropriately diligence and I think Jay in his prepared comments says we have the liquidity.
The executing against our original you know 40 to 60 million on a full year basis. So so we'd we'd be hopeful that we'd ramp back up in Q3 Q4 dependent.
Right on where we're at so we just want to be be smart and judicious about how we add that in Q3 in Q4.
Okay. Thanks, Dan [laughter] I'm, sorry, I didn't know <unk>. Thank you for the color that's very helpful. No worst [laughter].
College as lot so [laughter] [laughter].
No more questions, we will move back to Ryan for closing remarks.
Thank you everyone for joining the call today. This will conclude primos first quarter call. Thanks for attending.
This concludes today's conference call you may now disconnect.
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