Q4 2020 Primo Water Corp (MISSISSAUGA) Earnings Call
Good morning, My name is Craig and I will be your conference operator today.
At this time I would like to welcome everyone to the Primo Water Corporation Q4 fiscal year 'twenty 'twenty results conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you like to refer your question press. The pound key. Thank you I'll now turn the call over to John Paul Vice President.
Investor Relations. Please go ahead.
Welcome to Primo Water Corporation fourth quarter and full year 2020 earnings Conference call. All participants are currently in listen only mode. This call will end no later than 11 o'clock a M. Eastern time, the call is being webcast live on pretty most websites at www.
<unk> Dot Primo water Corp, dot com and will be available for a 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 securities regulators.
Company's 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 law.
A reconciliation of any non-GAAP financial measures discussed during the call with the most comparable measures in accordance with GAAP. When the data is estimable is included in the company's fourth quarter and full year earnings announcement released earlier this morning or on the Investor Relations section of the company's website at www.
Primo water Corp, Dot Com <unk>.
I am virtually accompanied by Tom Harrington pre most chief Executive Officer, and Jay Wells pretty most chief financial Officer.
As part of this conference call. We have included a deck online at Www Dot Primo water Corp. Dot com that was designed to assist you throughout our discussion.
Tom will start today's call by providing an update on the business impact of the ongoing pandemic and our progress on strategic initiatives. We are currently focused on.
Jay will discuss our fourth quarter and full year financial performance provide an update on ongoing synergy work and offer our outlook for the first quarter and the full year 2021 before handing the call back to Tom to provide a long term view ahead of Q&A.
Within the prepared remarks, Tom and Jay will be discussing our continuing operations, which incorporates the legacy Primo business and excludes the SMB business, which was sold in February of 2020.
Lastly, please be aware that the fourth quarter included a 14th week of activity, making 2020, a 53 week year compared to 52 weeks in 2019, all year over year comparisons will include the 50, <unk> operating week, except where otherwise stated with that I'll now turn the call over to Tom.
Okay.
Thank you John and welcome to your first earnings release with the company.
Everyone.
Earlier. This morning, we published our fourth quarter and full year 2020 financial results that continue to validate our transformation to a pure play water company.
We delivered a solid quarter and a strong 2020.
I'm incredibly proud of how our team has responded to a year. Unlike any other in our company's history.
The continued importance debt, new and existing customers place on our products and services and the ongoing efforts of our primo team to fulfill our commitments to our customers.
I have repeatedly stated that our mission is to provide our customers with high quality drinking water whenever wherever and however, they want it and we've demonstrated our commitment throughout the pandemic.
Despite all the debt challenges presented to US 2020 was a very important year for Primo and included several strategic successes and highlights that set us up for a bright future.
From an operational standpoint, we're entering 2021 as a different company compared to just one year ago.
In 2020, we demonstrated a firm grasp on our highly variable cost structure and leverage debt to respond accordingly to the economic impact of the pandemic.
We began the year by divesting, our non core F&B coffee and tea business and acquiring primo water as part of our transformation to a higher growth and structurally higher margin pure play water business.
We have transitioned more than 500 legacy primo associated to the team and consolidated over 120 facilities related to the legacy Primo acquisition. The execution has been a clear success.
We made improvements to our route infrastructure, where we increased the daily productivity per route as well as increased our route density.
Another important piece of improving our route density is our tuck in M&A strategy.
We executed 10 tuck in acquisitions, which will combine to add more than $30 million of revenue annually.
As part of a reaction to the challenges we experienced because of COVID-19, we halted tuck in M&A during Q2 and Q3 to preserve liquidity.
While we believe this was a prudent decision for 2020.
We maintain a robust pipeline of tuck in opportunities that we plan to execute against in 2021 and beyond.
All of these efforts have yielded a structurally more profitable and efficient Primo and last quarter. We raised our long term adjusted EBITDA margin target from 16% to no less than 18%.
As we enter 2021, we remain diligent in how we plan to put cost back into the business and we will balance our investments in organic growth initiatives, while making sure to protect these efficiency improvements.
Our financial results were very strong despite the difficult macro economic environment.
We grew adjusted EBITDA generated higher adjusted free cash flow and reduced our SG&A as a percentage of revenue.
We also exceeded our initial plan for synergy realization by a large margin, which Jay will elaborate on in a moment and we were added to the Russell 2000 index in July.
We made important and tangible improvements to the customer experience as we executed against our customer for life philosophy.
Consumers are doing more from their home and staying home is taking on new meaning.
Elevated levels of dining in and working from home are driving growth from our residential customer base and at home consumers, who use our water direct in exchange for water refill and filtration services for.
Fortunately, we have the capabilities to execute from an online perspective in retail stores and direct to the customer doorstep.
We grew our global customer base in 2020, and serve roughly $2 5 million unique residential and commercial accounts.
We did this while simultaneously, reducing our global cooler quit rate for the fourth quarter by 120 basis points from 21, 5% to 23%.
We do realize that it will be sometime before we understand the impact of the pandemic on the commercial customer base and where the customers who have not purchased since the pandemic began are permanently laws. However, we're making important strides aimed at retaining existing customers and are working hard to generate new customer adds.
In the current environment.
We have seen consumer purchasing behavior changed significantly during the pandemic consumers.
Consumers are buying more of their products online and having more of those goods and services brought directly to the doorstep in a safe no contact way.
We are well positioned to benefit from these trends as our overall digital and E. Commerce efforts continued to progress.
We launched our my water plus mobile app and rolled it out across the U S. In may the <unk>.
It's been well received and we've been encouraged by the rate of customer adoption.
As of the end of 2020, the App has been downloaded more than 190000 times.
We improved many of our e-commerce websites, including water dot com with the intent of simplifying the ordering process for customers and to raise their awareness of the breath of water solutions and products we offer.
In 2020, our unique web visitors in North America, while higher than 2019 by 51%.
Our web conversion rate was 12% higher than 2019.
We launched our new transactional website in 17 countries in Europe for residential customers to sign up for our service.
This is the first time that European consumers could sign up online with us and we're pleased with the early performance in terms of the number of new customers and the low cost to acquire these new customers.
And we're investing in our teams with the sole focus of developing online and e-commerce efforts across multiple retailers as well as a more robust social media effort.
All of these initiatives are greatly improving the customer experience and as a result, our cumulative net promoter score in North America for 2020 was 47.1, which is well above the 38, we sold off for 2019.
We also continued to advance our innovation efforts in January 2020, we launched pure flow and Iot enabled water filtration unit that monitors water quality and filter life and provides real time analytics on water usage and quality.
We launched a core standardization program in the U S to complement the existing programs that we have in Canada and in Europe as customers are increasingly conscious of the cleanliness of the products they use and consume both at home and in the office.
And lastly, we made important progress advancing our ESG initiatives.
Our services greatly reduce the use and disposal of plastic waste one of our five gallon bottles can be sanitized and reuse up to 50 times before being recycled which saves about 1500 plastic half liter water bottles.
During the third quarter, we achieved carbon neutrality in our U S operations.
Our European water business has been carbon neutral for nine consecutive years in.
In North America, we shifted some of our transportation fleet from diesel to propane, which reduces carbon emissions and a 75% cleaner than the current EPA standard for nitrogen oxide emissions.
And we have improved energy efficiency at our plant to ensure lower energy usage per finished product.
In Europe, we source for 100% renewable energy to cover the electricity consumption of all of our European operations, which have achieved carbon neutral electricity consumption.
In December our Diamond Spring site in Pennsylvania was certified by the alliance for water stewardship, AWS and we became the first company to have a spring water source certified under AWS standard the <unk>.
<unk> is confirmation of having met the global benchmark for responsible water stewardship and water quality.
We subsequently obtained the same certification for the second of our springs, or what kind of a spring site in Florida, which was announced last month.
All these achievements are important steps towards becoming an industry leader for natural resource stewardship, and advancing our ESG message across the broader investment community.
In short too.
2020 was a year marked with challenges and successes overall I'm quite pleased with the progress we made against our pure play water strategy. We continue to execute in our key focus areas to ensure that we are well positioned to capitalize on opportunities and we remain confident that long term growth.
Drivers of our business are intact.
I'll discuss our priorities and outlook for 2021, but first I would like to turn the call over to Jay to review, our fourth quarter and full year results in greater detail.
Thank you Tom and good morning, everyone.
Starting with our fourth quarter consolidated results.
Revenue increased 15% to $505 million compared to $440 million.
The 50, <unk> week contributed $19 million of revenue.
Excluding the impact of foreign exchange and the 50 <unk> week revenue increased by 9%.
The increase is due to the legacy Primo acquisition as well as increased demand for our products and services from residential customers and at home consumers.
This was partially offset by lower revenue from our coffee services and the water direct commercial customer base in both our North America and rest of world segments.
On a pro forma basis, excluding the benefit of the 50 <unk> week revenue decreased by 4%.
Fourth quarter, adjusted EBITDA increased 36% to $98 million compared to $72 million in 2019.
The 50, <unk> week contributed $4 million of adjusted EBITDA.
Excluding that contribution adjusted EBITDA grew by 31%.
The increase was driven primarily by increased demand for products and services from residential customers and at home consumers improved operating leverage the legacy Primo acquisition and synergy realization.
On a pro forma basis, excluding the benefit of the 50 <unk> week, adjusted EBITDA increased 11% versus prior year, our adjusted EBITDA margin increased by 300 basis points to 19, 4%.
Fourth quarter, SG&A expenses increased 5% to $248 million compared to $237 million.
The increase was driven by the addition of the legacy Primo business and $8 million of expenses from the 50, <unk> week, partially offset by lower SG&A, resulting from cost reduction initiatives implemented earlier in the year.
We benefit from our highly variable cost structure that offers us flexibility and we remain very diligent in terms of putting costs back into the business.
It will be important to balance our organic investment plans by protecting the efficiencies we have generated and we will be judicious with that process as conditions evolve.
Turning to our segment level performance for the quarter in North America revenue increased 24% for $385 million compared to $311 million.
Excluding the impact of foreign exchange and the $19 million benefit of the 50 <unk> week revenue increased by 18%.
The increase was driven by the legacy Primo acquisition and increased demand for our products and services from residential customers and at home consumers, which was partially offset by lower revenue from our water direct commercial customer base and coffee services.
On a pro forma basis, excluding the impact of the 50 <unk> week revenue in the North America segment decreased by 3%.
Adjusted EBITDA increased 43% for $82 million, which includes the $4 million benefit of the 50 <unk> week.
Excluding that benefit adjusted EBITDA increased by 36% due to the legacy Primo acquisition improved operating leverage and synergy realization.
On a pro forma basis, excluding the 50 <unk> week adjusted EBITDA grew by 11%.
In our rest of World segment fourth quarter revenue decreased by 8% to $120 million driven by lower revenue from our water direct customer base and coffee services.
Adjusted EBITDA decreased 1% to $24 million as decreased volume in our water direct customer base and coffee services business was largely offset by improved operating leverage resulting from our highly variable cost structure.
Now turning to our full year consolidated results revenue increased 9% to $1 $95 billion compared to $1 seven 9 billion.
The increase was driven by the legacy Primo acquisition increased demand for products and services from residential customers and at home consumers and the 50 <unk> week.
Partially offset by lower revenue from our water direct commercial customer base and coffee services.
On a pro forma basis, excluding the 50 <unk> week full year revenue was $1 $97 billion.
Down 4% compared to 2019.
Full year, adjusted EBIT increased 26% to $362 million compared to $287 million.
The increase was driven by increased demand for products and services from residential customers and at home consumers are highly variable cost structure the legacy Primo acquisition.
Synergy realization and the $4 million benefit of the 50 <unk> week.
Adjusted EBITDA margin increased by 250 basis points to 18, 5%.
On a pro forma basis, excluding the 50 <unk> week full year, adjusted EBITDA was $365 million up 8% compared to 2019.
Full year, SG&A expenses increased 5% to $1 billion compared to $962 million. The increase was driven by the addition of the legacy <unk> business costs related to COVID-19, and $8 million from the 50 <unk> week incur.
The increases were partially offset by cost reduction initiatives implemented earlier in the year.
Turning to our liquidity position and balance sheet. We ended the year with a cash balance of $115 million and available net borrowing capacity on our cash flow revolver of $195 million for a combined total liquidity position of $310 million.
We ended the year with a net leverage ratio of three four times and continue to target a post synergize net leverage ratio of 3.0 times.
Regarding our synergy work related to the legacy Primo acquisition, we remain confident that we will obtain the full $35 million in synergies over the next three years.
Cost actions and efficiency improvements that we enacted throughout 2020 have allowed us to realize a greater portion of those synergies sooner than we had anticipated.
As of year end, we have realized roughly $18 million for cost synergies well ahead of our previously planned $7 $5 million.
Since we executed some actions earlier than we originally expected. We are currently targeting roughly $7 million of incremental synergies in 2021 with the final $10 million in 2022.
Overall, we are pleased with how the business performed in both the fourth quarter as well as throughout 2020, despite the global pandemic and its economic impact.
Our commercial customers remain challenged but we did not see a significant deterioration during the fourth quarter when lockdowns for turn which is encouraging mean.
Meanwhile, demand from a residential and at home customers has remained consistently strong.
We understand conditions can change quickly, but the resiliency of our pure play water model and our highly variable cost structure makes us confident that we can react accordingly.
Also executing our strategic priorities.
As we look at our first quarter 2021 based on the information we have available to US as of today. We currently expect consolidated revenue from continuing operations to be between $455 million and $485 million. We also forecast that our first quarter adjusted EBITDA will be in there.
Range of 70 million to $75 million.
It is important to understand the ongoing impact of the pandemic on our quarterly performance in 2021.
The first quarter of 2020 included the positive impact of pantry loading, resulting from the then unknown impact of the pandemic coupled with solid core business performance. During the first 10 weeks of 2020.
Once we have lapped the pantry loading we saw in Q1 2020, we expect a return to more consistent growth versus prior year across all key metrics.
Please note that our current outlook does not include the impact of recent weather disruptions across a significant portion of the U S. But our associates have once again stepped up to aid in the recovery of those areas that were the hardest hit.
Our thoughts go out to those who were adversely affected.
For the full year 2021 revenue is projected to grow by approximately 5% and we expect $370 million to $380 million of adjusted EBITDA, including $7 million of synergy capture around $15 million of cash taxes.
$73 million of interests as well as capital expenditures of around $135 million.
The opportunity remains for an additional $40 million to $60 million of tuck in acquisitions.
In terms of our growth algorithm. After 2021, we expect to grow organic revenue by roughly 5% per year.
Organic adjusted EBITDA by $12 million to $15 million per year, and an additional $5 million to $10 million of inorganic adjusted EBITDA from accretive tuck in acquisitions, we remain confident.
Confident that our starting point for annualized adjusted EBITDA margin will be no less than 18% and will increase by 20% to 30 bps per year over the course of the next few years I will now turn the call back to Tom.
Thanks Jay.
As you just heard Jay cover we're pleased with where we stand today and how the business performed in 2020.
As we look ahead to 2021, we are focused on a handful of key areas to drive organic growth and better leverage our pure play water model out.
Our first priority has always been and will continue to be the health and safety of all of our associates customers and suppliers.
The resilience and dedication of our associates as they service the needs of our customers has been remarkable and I want them to know how much we appreciate their efforts.
We will leverage our pure play water model to drive organic revenue growth by approximately 5%.
This includes continuing to enhance the customer experience from order placement to delivery and to improve the customer facing tools to facilitate that experience.
This will include building out a more robust and diverse e-commerce solution improve.
Improving the functionality of our mobile App and e-commerce side, developing meaningful relationships with new online retailer engaging customers with new and exciting promotions instituting loyalty and rewards program and expanding our voice of customer initiative to gather critical feedback and refine our approach.
Entering 2021, we already possess a large customer footprint of over $2 5 million commercial and residential accounts.
With a distribution network that offers a scale and Ralph coverage.
We are simultaneously developing new and innovative customer acquisition strategies.
Further reduce our quit rate and improved customer retention.
In Europe, we plan to accelerate our water refill water exchange and water dispenser businesses to diversify our customer base and capture growing demand in the residential market.
We are one of the leaders in water solutions in Europe, and have the footprint and expertise for low cost rollout of our legacy Primo solutions we.
We believe we will begin to see the benefits in the back half of this year and they will provide us with profitable growth and a more balanced customer mix in Europe over the longer term.
We will emphasize efficiency and leverage our highly variable cost structure to protect those improvements.
Our team is focused on capturing the identified synergies and we will continue to take appropriate action on that front.
We will identify and execute highly accretive tuck in acquisitions across North America and Europe.
And we will seek new ways to further expand our standing as an ESG and sustainability leader.
Entering 2021.
The growth drivers of our business remain intact.
For one the increased cocooning and work from home levels or trend that will not go away quickly and we expect that they will continue to drive demand for our at home solutions for the foreseeable future.
Consumers are drinking less sugary sweetened beverages, and opting for healthy hydration solutions, where we're well positioned to benefit from growth in the health and wellness category.
Customers are also purchasing more of their goods and services online, where we stand to benefit from our E. Commerce efforts and lastly, environmental awareness as well as concerned concerns over municipal water quality highlight primo is positioned as a provider of sustainable and healthy hydration solutions.
All of these underlying trends continue to support demand for our products and services.
As Jay noted.
We expect our consolidated first quarter 2021 revenue to be between $455 million and $485 million and for our adjusted EBITDA to be between 70 million and $75 million.
For the full year 'twenty, one we are forecasting revenue growth of approximately 5% and for adjusted EBITDA to be in the range of $370 million to $380 million.
We expect to see sustained strength from our water direct residential customer base and in other at home channels and we continue to closely monitor the condition of our water direct commercial customer base.
I'd like to take a moment to address last week's announcement that Nestle has entered into an agreement to sell its nestle waters North America business to one rock capital partners in partnership with Metropolis and company.
We continue to believe that the combination of the ready refreshed HOA business with our own make strategic sense and we remain an interested buyer if and when the opportunity arises.
<unk> did not provide an opportunity to carve the ready refreshed <unk> assets out from the entire North American water business.
Our interest was for the ready refresh HOA business, only and not the whole company.
As a net of corporate policy, we won't be commenting further about any particular strategic discussions we may or may not be having.
With that I'll turn the call back over to John to move us to Q&A.
Thanks, Tom during the Q&A to ensure we can hear from as many of you as possible. We would ask for a limit of one question and one follow up per person.
Thank you operator, please open the line for questions.
If you would like to ask a question. Please press Star then the number one on your telephone keypad again Thats Star then the number one on your telephone keypad.
Please hold as we compile the Q&A roster.
Your first question comes from the line of Derek <unk> with Canaccord Genuity.
Yeah, Hi, guys.
I just pointed out.
Good morning, I just wanted to follow up on that last comment I mean on the Nestle in the one rock so when we.
Look at that transaction and kind of run through our math, which you know there is widely quoted number of $3 8 billion in revenue.
Within that North American assets, and if we put a slightly lower margin on that then primo generates I get to a roughly seven five times EBITDA multiple for it for the transaction value, which is relatively in line with what we've seen in historical multiples in the space. I was just wondering is that how we should be thinking about that transaction.
Yes, Derek this is Tom I'll pass that to getting just a minute, but I just want to reiterate some of the my words from the script, which is we maintain at it we believe it to be of strategic value to our company to combine them.
And that we did best efforts in articulating our interest in radio refresh H O D business from day, one it became pretty clear that it was naturally its intent to sell it as a whole and our interest remained.
Narrowly in that piece of the business that.
That fits strategically onto our footprint. We remain interested you know and I said in my comments, if and when when this becomes available.
We remain interested in the opportunity that the asset.
<unk> provides but again, we always maintain our financial discipline, which is our historical track record here.
Jay can you take a shot at net.
Yeah, Yeah, I'm, there with you Derrick I've seen a wide range of multiples on this deal.
And when I've talked to individuals' at 12 times EBITDA or higher so that's more of the higher end of the range.
Said, they're using a 10% EBITDA margin and I looked at nestle's public filings since they just announced their earnings last week and you know I wasn't able to find any reference to EBITDA margin, but on the last page of the earnings release issued last week. They do state that their water business had underlying trading operating profit.
<unk> of 10% in 2020, so I think that might be a disconnect because the operating profit includes depreciation and amortization expense. So on that I went and looked to see if necessary broke out the DNA for the water business and you know I couldnt find that but if you simply take a very basic approach and I took a percentage.
For the assets held for sale Versal versus total assets times total depreciation I got to a little under a 180.
Millions of dollars of depreciation so it's really rough math, I'm, not saying attack rate or just what I could find from public records and I got to around a 15% EBITDA margin when factoring depreciation on the disclosed results. So.
Again, I'm not saying this is correct, but I am getting into a number somewhat closer to what you use based on what I was able to find on public records with with the announced with the assumptions I just mentioned.
Yeah, Okay, and that's in that similar how we got to that seven five times is that 15% margin using sort of the same sort of exercise you did with the public documents I appreciate the clarity there. Thank.
Thank you for that just had a question in terms of customer additions.
From an e-commerce platform, how is that going do we see an acceleration at all from Q4 into Q3, or what where that what were the trends in that portion of the business this quarter.
Yeah, Derek Tom again, you'll recall that we began to expand our footprint over the course of the end of the year.
The program is remains in place that it's now however, you would find it under shop local.
So the ability to transact with.
Thoughts for onetime purchases in Tac and we're quite pleased with the outcome frankly.
With that large e-commerce Amazon.
Retailer.
So we still remain confident in our ability to build that business over time.
In North America.
Okay. Thank you very much.
Your next question is from the lineup.
Hello.
Your next question is from the line of Derek Lessard with TD Securities.
Yeah, Hey, guys good morning, and net.
But on a great quarter good morning.
Happy to see guidance come back just one question here the guidance that Youre, giving suggests that margins are going to be in the mid 80% level, which is where you guided to just maybe help me square way that with this quarter's 19 four.
4% performance.
I mean, Derek when you look at our full year guidance that we provided one you've got to keep in mind that we really need to jumpstart some of our marketing spend to accelerate our recovery and to hit our targeted 5% organic revenue growth. So you know you need to factor that in we will add it back we will.
Disciplined as we add it back, but that's part of what we're factoring into our guidance.
Confident with our long term outlook.
But it is prudent to acknowledge the timing of returning to normal also which is a little thing to keep in mind, we're not through the pandemic, yet and you know our belief is it's going to at least through I'll ask for the front half of the year if not longer.
And at the end of the day.
You've got to factor in the lapping of the pantry load than we saw in Q1 of last year, I mean, you're talking high single digit EBITDA type contribution.
In dollars from that pantry loading so.
I think Q1 is going to provide us with a lot of noise as I've mentioned previously, but feel we'll get back to what we guided as we did so and on your Q for specific question.
We had a lot of cost levers that really benefited us in the quarter and I would say that inflated the margin I wouldn't take that as run run rate, but we did we did really watch costs tightly to close the year, we wanted to deliver on our numbers and we did so.
Okay.
For Jay and maybe just one last one.
Maybe if you can highlight what youre guys are seeing on the commercial side of the business specifically if you if youre seeing any green shoots that you could talk to.
Yes.
Our commercial business.
You went to October was was disappointing in Europe, but then recovered despite marginally so.
So we finished the year a little bit better than we anticipated in terms of commercial recovery.
It obviously varies by country.
But both North America and eat net settled into the current rate. So we have to cycle through that obviously in Q1, which creates some unknown about how ultimately that will finish.
But then we're confident that as we cycle through the pandemic and as the year goes returns to normal debt some amount of that commercial customer base should return.
Okay. Thanks, gentlemen.
Thanks for thanks Derek.
Your next question comes from John Zang.
<unk> with CIBC.
Good morning, John Hello, John Thanks.
Thanks, Good morning, guys.
I just wanted to follow up on the EBITDA guide as well.
It seems like if you take out the 50 <unk> week from this year to add the synergies you are calling for you add the two extra months of Primo that youll have in 'twenty one versus 'twenty.
If you back out the pantry loading that seems to get you to the low end of the guide.
And presumably you will have a regional amount of tuck ins. So just hoping you could elaborate a bit on this is is it that the additional spending kind of offsets entirely the revenue growth you're expecting is there anything else on the SG&A side, we should be aware of any other commentary there would be helpful.
Yes, John This is Tom and good morning, again, I'll take a piece of that and then I'll turn it over to Jay, but we have not considered any tuck ins.
In our 2021 guide so to your point is as they come to fruition, they would drive incremental revenue and profitability over time.
But we purposely let that out because you know we've changed out numbers to mid single digit 5% organic growth and have been clear about that and then we will continue to execute Jay referenced $40 million to $60 million, we're going to continue to accelerate on tuck ins as we move through the pandemic and we got frankly.
<unk> pipeline.
So it will be a return to historical practice, if you will.
Yeah.
On the guidance from the EBITDA Aside you know like I said, we do have some spend coming back and we're not really spending any marketing dollars on the commercial side of our business right now as things start coming back to normal we do want to focus on returning that spend which will be.
Along with the return to norm and we will be prudent and as I mentioned for our guidance you might be saying that we are at the at the lower end, but I have like I said, it's yeah, it's rough estimates, but it's high single digit EBITDA benefit in Q1 from the pantry loading we saw and if you look.
At that quarter are our EBITDA was up significantly year over year, even when you exclude the one month of legacy Primo we had so our desire is to be prudent to get through the year.
As we lap Q1, and Q2, which were the.
Biggest noisy quarters because of the pandemic.
We will update our full year guidance, but at this point in time, we thought it was prudent to provide the guidance we did.
Okay. That's helpful. Thanks, and then my follow Up's on on the earlier question on income commercial volume. So maybe you could add residential as well.
In Q3 on the call you said in October that commercial was down about 30% and residential was up I think mid twenties.
What would those equivalent numbers be for let's say December January and what you see for February so far yes.
I'll give you a couple of numbers here and Jay.
Jay can elaborate if I miss anything, but residential water direct and exchange in North America.
<unk> was up 26%, excluding the 50 <unk> week, so apples to apples.
Commercial revenue was down 20%, excluding the 50 <unk> week.
So you know the residential maintained maybe got a little bit better than commercial settled in.
And that's North America, and the rest of the world.
Residential was up 14% for the year end 'twenty one per cent for the quarter, but remember, it's a very small base and the commercial business was down 20.
20% for the quarter end and frankly, the same number for the full year.
So we frankly saw it settled down into a run rate.
And we're frankly pretty pleased about how the quarter ended <unk> <unk>.
Tom said in his prepared remarks, I mean, and we were very happy with those results because we did see the second wave and increased Lockdowns hit.
In Europe, and so we felt it performed well as we got into January February we're seeing improving trends over in Europe that have us exciting.
North America has been pretty consistent with the residential numbers throughout the time last year and we're seeing that continue and commercial is improving a little every every quarter.
Okay. That's great. Thank you very much.
Thanks.
Your next question is from Kevin Grundy with Jefferies.
Good morning, Kevin Great. Okay morning, everyone, John welcome to the call as well officially.
I look forward to working with you.
I have two if I may strategic capital deployment, and then a quick housekeeping question on free cash flow. So I want to come back to the strategic capital deployment. So within the context of the larger transaction that you mentioned of course with <unk>, which has gotten a lot of focus on appropriately so.
And specifically the range of timing now going forward with respect to outcomes is that impacting near term capital deployment decisions for the company and for the board. So I ask that you talked about the robust pipeline for tuck ins.
In the absence of larger considerations with respect to M&A why not accelerate the pace of tuck ins, which were on hold for understandable reasons. This past year I wouldn't put words in your mouth, but I know you guys have long felt the stock is undervalued, which I think many people on the call agree with would you consider share repurchases. So any comments there.
There would be helpful. And then I have a follow up on free cash flow.
Yeah, I'll take a piece of that and then I'll give some to Jay look on the tuck ins.
Entailed 40 to 60, we won't see a lot of activity in Q1, frankly, because we're still managing through the height of the pandemic from prior year, but we will building a list of actions and of course, we want to make sure that we execute.
So.
If it's if it's at the low end or the high end really comes down to where are those targets and our ability to properly execute so that we can maximize the return for our shareholders as it relates to tuck ins and the other piece is frankly in Capex is that as we come out of.
For 2020, we have to make some reinvestments in capex that we cut last year related to preserving liquidity.
And.
To add on that one keep in mind, we're not through this pandemic yet so we continue to to really preserve our liquidity, we've done extremely well throughout but we're not going to get over our skis and spending money too quick too fast too on your question Q1, historically is as you know.
Not a free cash flow generating quarter for us so really it's not a period that I would see excess cash that needs to be deploy up a little bit of borrowing on our revolver that I can I can deploy any excess cash if I end up with some so on on buyback and other capital appointment.
Another quarter of let's get through the pandemic I don't have the cash flow this quarter really to deploy anyways and will provide an update on our next quarterly call.
Okay.
Put a finer but it does not sound like there's any sort of considerations, where you guys feel like you should be keeping your powder dry is that is that fair.
Don't have to make a decision on that for a quarter as I've as I say, okay. Okay, Alright, and then quick one fair enough quick on the free cash flow. So you gave us most of the drivers here with respect to EBITDA cash taxes, Capex et cetera.
Is there anything noteworthy with respect to working capital this year, we should be thinking about.
Update our models for free cash flow.
No I would say when you look at our moving and our guidance up to you know going forward really targeting 5% organic growth.
That would normally use some working capital along the way, but we're work hard to to manage working capital to offset any type of use of working capital with that growth and for me. The goal is to try and keep working capital flat on a go forward basis. Okay very good. Thanks for the time guys. Good luck.
Thanks, Kevin.
Our next question is from Daniel Moore with CJS Securities.
Good morning, Hey, Good morning, Dan how are you good morning for.
Very good thank you.
I wanted to expand quickly on.
Exporting primo's traditional refill and exchange businesses to Europe, I think you mentioned it would be <unk> before you start to see impact, but any additional color insights anecdotes.
Do we think about the ramp there.
Yes, we went through a very detailed analysis of opportunities by solution.
Whereas the award of direct opportunity by country with the refill, whereas the exchange in Europe as part of our <unk>.
Multiyear Strat plan.
We are we also referenced in our comments about building out our e-commerce capabilities some of us call with swap.
Which would be the first place where we would begin to sell dispensers in a number of countries.
And then.
We do it are working on our exchange business in Russia, and the Baltics.
So we have a <unk>.
Early stage development.
And those countries, where the team is working on developing that solution and see how that would expand in eastern Europe, but before we go to other countries, let's say Poland. As an example, we want to make sure that we have the right model that works in Russia, and the Baltics that can then be expanded from an execution standpoint with with little disruption.
So where we.
We're cautiously optimistic and they are all in development of one stage or another on those two topics.
Got it helpful and then.
My my shot at everybody's favorite topic here, but you see any change in the competitive environment with the change of ownership already refresh number one and number two apologize for ASP for a question and I know the answer to but any comments regarding when you might be able to begin a dialogue with one rock.
Sure I'll take the first part.
Look our success is really ultimately driven not by what ready refresh does but how we interact with our customers. An example would be the global reduction in quit rate from 25 to 23 said that our investments in the customer experience in our web and things like that.
But producing.
A tighter relationship between us and our customers right and you know if you will that's the Holy Grail.
And in terms of any specifics there is nothing going on that causes us caught alarm or concern.
We're sticking to our key focus and frankly in the month of February we're focused on the terrific efforts. Our teams have done in Texas, Oklahoma and Arkansas, So interestingly those folks.
So live there and have gone through those issues, but as an example, we operated Saturday and Sunday to get our business back in shape and and properly hydrate people, who frankly are in great need of water. So we're going to stick to our knitting.
Nothing that causes us great concern on a competitive front in North America, and Tom can take the second I guess I have to give the no we can't comment any further.
Uh huh.
CFO.
I always take the easy ones Jay Alright, Thank you very much I appreciate it.
Thanks debt.
Your next question is from.
Graham price with Raymond James.
Good morning.
Hey, good morning. Thanks for taking my question. This is Graham price loans for vivo motion all.
So just real quick in your long term growth algorithm you your target for $5 million to $10 million of accretive tuck ins.
Which.
It seems to be quite a bit lower than what you did last year and what you expect this year. Just wondering if we can view that as a bit of a conservative target that potentially you could do a bit more than that.
Yes.
We have in a number of years in the past Dunmore until I track record would say higher.
But again, we're still in this pandemic.
So we will do nothing early in the year I don't want to be very cautious about how we go after it but we have a good pipeline.
And those tuck ins that $5 million to $10 million on an EBITDA basis and it comes to timing of frankly, when you close those deals right. So in some cases, you might get half life right in a particular calendar year as an example, as opposed to the higher end, but we won't forego any opportunities that make sense for us.
Our footprint as they become available on both sides of the Atlantic.
Gotcha.
That's helpful and then I guess sticking with.
Last part of what you just said.
I just wanted to kind of pick your brain on.
On that landscape in the U S.
Versus overseas.
Kind of how those compare.
Yeah, right now we would have what I would call a balanced approach.
Right. So that we have like size opportunities on both but that's as I sit here today and its pipeline develops each quarter.
So we have a good pipeline in North America, frankly, we announced mountain Valley of Los Angeles, which is a terrific opportunity for us that brand that acquisition has been very beneficial to the company and it helps us get into the premium premium amortization.
This space with high price bottle. So we'll continue to go down that path and then there's obviously a few other opportunities and then when you get to Europe. There are.
It's a if we have a 20 share or so approximately theres lots of small tuck ins country by country and the team has worked through the list of in every country, who is the top five in debt frankly becomes our target list and we will continue to evaluate adjacent countries that we can still see benefit for example, we added Hungary.
Last year. So we will continue to do that to over in Europe.
Perfect. Thank you very much.
Thank you.
Your next question is from Andrew <unk> with J P. Morgan.
Good morning, and thank you for for squeezing.
Squeezing me in.
I think I'm going to try again.
Question is a follow up from the prior questions on M&A.
Just to summarize since we heard you comment and I appreciate the.
Canada Hong.
Got you.
Do you think you would wait for the if and when relative cash becomes available.
Oh, we move down the list.
You know when you have to obviously.
You don't want to Miss out there for Trinity.
I mean, I think we've been at least for since the end of December 2014.
We acquired <unk> I think we have been consistent that we view it as a highly strategic opportunity.
And we still view it as so and we.
We will always be available and interested in talking about this opportunity.
But do you think it changed with a with a private equity.
Perhaps who wants to maximize the value of the total.
With this business being a higher margin business.
Yes, I mean.
I do apologize, but yeah. I mean this is this is a scenario that we've really provided all the comments we can on that opportunity.
Of course, I understand I'll pass it on thank you.
Thank you.
As a reminder, if you would like to ask a question. Please press Star then the number one on your telephone keypad again Star then the number one on your telephone keypad.
And at this time there are no questions.
This concludes <unk> fourth quarter and full year results call. Thank you all for attending.
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