Q1 2021 Primo Water Corp (MISSISSAUGA) Earnings Call
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Good morning, My name is Felicia and I'll be your conference operator today at this time I would like to welcome I want to of the Primo Water Corporation first quarter 'twenty 'twenty. One 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 would like to ask a question and go.
And this time simply press Star then the number one on your telephone keypad. If you liked what the GA question press the pound key. Thank you I'll now turn the call over to John <unk>, Vice President Investor Relations. Please go ahead.
Welcome to Primo Water Corporation first quarter 2021 earnings Conference call. All participants are currently and listen only mode. This call and no later than 11, a M. Eastern time the call is being webcast live on <unk> website at Www 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 and connection with cautionary statements and disclaimers contained in the safe Harbor statements in this morning's earnings press release and the company's annual.
And we'll report on form 10-K, and quarterly reports on form 10-Q, and other filings with securities regulators.
The 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 asked of the ball.
As included in the company's first quarter earnings announcement released earlier this morning or on the Investor Relations section of the company's website at Www Primo water Corp Dot com.
And I am virtually accompanied by Tom Harrington Primo as Chief Executive Officer, and Jay Wells pretty much Chief Financial Officer as part of this conference call. We have included a deck online at Www Primo water Corp. Dot com that was designed to assist you throughout our discussion and.
Tom will start today's call by providing a high level review of the first quarter and our progress on the strategic initiatives. We are currently focused on.
And then Jay will discuss our first quarter financial performance and greater detail provide and update on ongoing synergy work and offer our outlook for the second quarter and the full year 2021 before handing the call back to Tom to provide a long term view ahead of the Q&A.
Within the prepared remarks commentary, we will be discussing our continuing operations, which incorporates the legacy of Primo business and excludes the F&B business, which was sold in February of 2020 with that I will now turn the call over to Tom.
Thank you John and good morning, everyone. This morning, we reported a solid start to 2021 as all of our financial results were at the high end of our expectations on both revenue and adjusted EBITDA.
The revenue of $478 million grew 1% compared to last year, and adjusted EBITDA increased 8% to $76 million.
Strong results are impressive given that we were cycling and the effects of pantry loading that we experienced during the early days of the pin debit.
A large portion of the revenue decline was from on noncore of coffee service business.
Our pure play of water businesses performed well and once again validates our strategy to focus on water solutions.
During the quarter the extreme winter weather events and February created a brief but challenging operating environment and several markets.
And I'm incredibly proud and appreciative of the way our teams and these markets responded and continuing to deliver healthy hydration solutions directly to the front door of our customers during a real emergency.
Our commitment to providing customers with high quality water whenever and wherever and however, they want it remains at the center of who we are.
The demand for at home products and services remains elevated and more than one year from the onset of the pandemic as we've continued to deliver for our customers.
During the first quarter revenue from our residential or at home customers was 25% higher than the prior year as reported and up 7% on a pro forma basis.
While revenue from our commercial customers was lower by 23 per cent compared to last year, we've generally seen a slow but steady improvement from our commercial customers over the past 12 months and we are optimistic that continued re openings and the markets. We serve will lead to incremental revenue from these customers.
As a reminder, our commercial business is centered around small businesses not large offices and the March the lease of the ADP small business report small businesses and the U S.
As defined by having 1% to 19 employees or near full recovery when compared to pre pandemic employment levels you have.
The businesses with 20 to 49 employees are at and index of 115, when compared to the low point of COVID-19 employment levels in April 2020.
In short the small business small office environment is beginning to return to work and the segment is likely to grow further from here.
Even as we expect improvement on the commercial side, we are confident that the new residential customer sign ups will remain loyal primo customers, even as local economies reopen and people return to work in other words, our customer base is not subject to a one for one trade off or a zero sum game.
As the commercial segment activity recovers.
As evidenced by trends and the do it yourself retail channel and residential real estate, we expect consumers to continue to do more dining working and entertaining from their homes, which will drive growth and our residential customer base and at home consumers, who use of water derived and exchange or water refill and filtration services.
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We have seen consumer purchasing behavior changed significantly during the pandemic.
Tumors of buying more of their products online and having more of those goods and services delivered directly to their doorstep and a safe no contact way.
This includes everyday essentials like healthy clean drinking water and.
We are well positioned to benefit from these trends as our overall digital and E. Commerce efforts continue to progress and our water you're way offering remains highly complementary.
It is also clear that the investments we have made to improve the customer experience are yielding positive results increasing the likelihood that these new sign ups remain satisfied with our service.
Our global cooler quit rate for the first quarter was 19, 8%, which is slightly higher than prior year. Our net promoter score of decline from its record high of a year ago, driven by service disruptions and markets that experienced new lockdowns and the short term impact of the U S weather of that.
On top of all of that we believe there are more structural and thematic tailwind that support the retention of these customers and the continued growth of our overall business.
The growth and the health and wellness category continues to support our prospects of gaining share of the board of beverage category at the expense of sugary sweetened beverages and co.
COVID-19 continues the elevate the health and wellness conversation and research and customer behavior continues to drive increased water consumption.
In addition, the perception of the declining quality of municipal tap water is well documented which supports the growth of our products and services.
Tap water as a primary drinking source is expected to continue to decline.
Sumit demographics also the favorite bottle of water as Gen Z and millennials have demonstrated their preference for a bottle of water versus tap.
In addition to retaining new customers. We're also diligently focused on adding new customers.
The addressable bulk water market of U S. Residential households alone is estimated to be between $22 million to $29 million and growing as younger generations have adopted bottle of water as the primary method of water consumption and the home.
Our dispenser sales provide an important entry point to access these households, and capitalize on on for our recurring razor razor razor blade revenue model.
And our internal research indicates that among last year's North American dispenser sell through sales of 1 million units, 60% of respondents are new to the category, 30% of replacing the previous dispenser and the remaining 10% are adding an additional dispenser to an existing or secondary residence.
Additionally of those likely to become a future dispensary of household research indicates that consumer preference is 45 per cent for water direct.
And 30% per per exchange and 25% preferred refill.
We should continue to capture our fair share of this growth as our for our model remains one of the our strategic advantages.
Improving trend favorable tailwind and execution against our strategic initiatives provide the confidence to raise this year's adjusted EBITDA outlook to between $380 million and $390 million and to reiterate our long term expectation of 5% organic Rev.
The new growth annually.
The incremental benefit from a regular tuck in M&A activity. Our plan is to accelerate M&A activity and we expect to be at the high end of the range of $40 million to $60 million of investment and 2021.
We maintain a robust pipeline of tuck in opportunities that we plan to execute against this year and beyond.
Yesterday, we announced that our board of directors authorized the new $50 million share repurchase program, which expires on May nine 2022.
Following our successful transformation into a pure play of water company.
And effectively navigating the pandemic over the last 12 months, we have sufficient liquidity to fund our tuck in acquisition program. In addition to implementing and opportunistic return of capital plan and 2021.
And our new share repurchase program reflects our confidence and the consistent and recurring nature of our model and our continued long term cash flow generation.
And demonstrates our commitment to creating value for our shareholders.
On the ESG front, we continue to elevate our commitment to sustainability leadership.
Last year, we achieved carbon neutrality, and our U S operations, and our European and water business has been carbon neutral for nine consecutive years.
And Europe, we source, 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, and Pennsylvania was certified by the alliance for water stewardship, AWS and we became the first company to have a spring of water source certified under AWS standards.
We subsequently obtain the same certification for the second of all the spring World our tie the spring side and Florida during the first quarter.
This year, we are introducing our latest sustainability goal of becoming 100% carbon neutral in our global operations by the end of this year.
I will discuss our priorities and outlook for 2021, but first I would like to turn the call. The day J to review of first quarter financial results in greater detail.
Thank you Tom and good morning, everyone.
And with our first quarter consolidated results revenue increased 1% to $478 million compared to $474 million.
The increase is due to the legacy Primo acquisition and increased demand for our products and services from residential customers and at home consumers as well as foreign exchange.
Partially offset by lower revenue from coffee services, and our water direct commercial customer base, both on our North America and rest of the world segments Global revenue from residential customers and at home consumers grew 25% and global revenue from commercial customers declined by 23% and the quarter.
A major portion of the commercial decline was from our office coffee services business, which was down roughly 50%.
On a pro forma basis global revenue decreased by 7% driven by lapping last year's surge of volume caused by pantry loading and the effect of lower volume and our commercial channel.
Adjusted EBIT increased 8% to $76 million compared to $70 million.
The increase was driven by demand for products and services from residential customers and ask on consumers' continued operating leverage improvement.
The legacy Primo acquisition and ongoing synergy realization.
Our adjusted EBITDA margin increased by 110 basis points to 15, 9%.
On a pro forma basis, adjusted EBITDA margins improved by 80 basis points, while total adjusted EBITDA was down slightly by 2% versus Q1, 2020.
SG&A expenses declined 3% to $248 million compared to $255 million.
The decline was the result of cost reduction initiatives and responses to the pandemic most of which were implemented in April of last year.
Please keep in mind that January and February were the last two months of incremental SG&A associated with the legacy Primo acquisition and the incremental cost was more than offset by tight cost management.
On a pro forma basis, SG&A declined roughly $21 million or 8% versus Q1 2020.
We have discussed our expectation for certain cost of slowly return and 2021, as we restart certain promotional and marketing initiatives, but.
But it will be important to balance these organic investment plans, while protecting the efficiencies we have generated.
We benefit from our highly variable cost structure, and we will remain diligent with how we manage these costs.
Turning to our segment level performance for the quarter.
And North America revenue increased 4% to $366 million compared to $351 million.
The increase was driven by the legacy Primo acquisition and strength within our residential customer and at home consumers.
Partially offset by lower revenue from our water direct commercial customer base and coffee services.
On a pro forma basis revenue declined by 6% again, the decline was driven by the effect of lapping last year's pantry loading.
Adjusted EBITDA increased by 10% to $68 million due to the legacy Primo acquisition.
The operating leverage improvement and ongoing synergy realization on.
On a pro forma basis, adjusted EBITDA was lower by 2% compared to Q1 2000 and 'twenty. When we grew adjusted EBITDA by $20 million.
Turning to our rest of the World segment revenue decreased by 9% to $113 million.
Excluding the impact of foreign exchange revenue declined by 14% the <unk>.
Decline was driven by lower revenue from our water direct commercial customer base and coffee services.
Adjusted EBITDA and the segment decreased 1% the $15 million as declines from water direct and coffee services businesses were largely offset by improved operating leverage resulting from cost reductions and the impact of foreign exchange.
Turning to our liquidity position and balance sheet, we ended the quarter with the cash balance of $102 million and available net borrowing capacity on our cash flow revolver of $194 million per a combined total liquidity position of $296 million. This equates to a net.
Leverage ratio of three five times and we continue to target of post synergize net leverage ratio of 3.0 times.
Also as we previously announced we closed a private placement offering of $750 million senior notes due 2029.
The proceeds of that issuance were used to redeem our outstanding 2025 notes the.
And the new notes carry an interest rate of four and three 8% per year.
And as a result, we were able to lower our expected 2021 interest expense from $73 million to $68 million.
Going forward on a full year basis, we expect interest savings of just over $8 million versus previous rates.
Turning to synergies we continue to make good progress on our synergy capture work and remain well ahead of the schedule. We provided at the time of the legacy Primo acquisition.
We continue to target the flow of $35 million from synergies over three years, but has significantly accelerated that number after the cost reductions we pursued last year.
After realizing roughly $18 million of cost synergies in 2020, we realized another $7 million and the first quarter of 'twenty to 'twenty, one expect to achieve 1 million per quarter for the balance of 2021.
And the remaining $7 million of synergies will be realized and 'twenty 'twenty two.
As Tom said, we are pleased with our first quarter results and the strength of our residential channel. Despite the lapping of pantry loading and the prior year.
Many of our commercial customers are still grappling with when and how the fully reopen but we're starting to see some more active commercial customers, albeit consuming at of less than pre pandemic level as they abide by local capacity constraints.
As we have now lapped the pantry loading effect, we expect more consistent growth versus prior year across all key metrics beginning in Q2.
Looking to the second quarter based on the information we have available to us as of today. We currently expect consolidated revenue from continuing and operations to be between $490 million and $510 million.
We also expect that our second quarter, adjusted EBITDA will be and the range of 90 million to $95 million.
For the full year 2021 revenue is projected to grow by approximately 5%.
And we are raising our outlook for adjusted EBITDA by $10 million to now between 380 and $390 million.
We also expect around $15 million of cash taxes.
$68 million of interest as well as capital expenditures of around $135 million.
Turning to capital deployment, our current plan is to focus on accelerating the robust pipeline of tuck in opportunities in front of us, we feel confident and our ability to achieve the high end of our target of $40 million to $60 million of tuck ins This year and as Tom discussed we will fund a.
New $50 million opportunistic share repurchase program.
Before I turn the call back to Tom I would like to point out that our exposure to commodity inflation is relatively small.
Our materials of recycled and our main expense items subject to inflation is labor as the cost of making and delivering on our water solutions is predominantly labor and we have taken price increases that has allowed us to stay ahead of inflation.
Within cost of sales the impact of third party freight is up slightly compared to recent quarters and that effect is embedded and our outlook.
In terms of our growth algorithm. After 2021, we expect to grow organic revenue by roughly 5% per year generate and an incremental 20 to 30 basis points of adjusted EBITDA margin improvement annually.
And add incremental $5 million to $10 million of inorganic adjusted EBITDA annually from accretive tuck in acquisitions.
I'll now turn the call back to Tom.
Thanks, Jay moving.
Moving forward, we are focused on executing our differentiated what are your way platform and our key focus areas to drive the success of the business.
Our priority has always been and will continue to be the health and safety of all of our associates customers and suppliers.
We will leverage our pure play of water model to drive organic revenue growth by approximately 5%.
We will continue to enhance the customer experience to improving customer facing tools and building out a more diverse e-commerce solution.
We are improving on my water, plus mobile App and e-commerce sites, developing meaningful relationships with new online retailers and engaging customers with new and exciting promotion and the implementing rewards programs.
And we're developing new customer acquisition strategies to diversify our acquisition channels.
The reduce our cooler quit rate and improve customer retention.
In Europe, we are accelerating on water refill water exchange and water dispenser businesses to diversify our customer base and capture of growing demand and the residential market.
Last month, we began introduced dispenser sales and New York.
Although the sales are off of the very small base and.
Initial excitement levels are high and.
Our existing presence and leadership position and Europe makes the rollout of these products and services relatively low cost the.
These efforts are well underway and we expect to see the benefit of the year per guesses.
Additional focus areas include protecting our efficiency improvements and leveraging and I'm a highly variable cost structure.
Remaining focused on the identified synergy actions related to the legacy of Primo acquisition.
Identifying and executing highly accretive tuck in acquisitions across North America and Europe.
And seeking new ways to further improve our standing as an ESG and sustainability leader and.
Including our new goal of achieving carbon neutrality and our global operations before this year is up.
As Jay noted, we expect our consolidated second quarter revenue to be between $490 million and $510 million.
And for our adjusted EBITDA to be between 90 million and $95 million.
For full year 2021, we are forecasting revenue growth of approximately 5% and.
And for adjusted EBITDA to be and the range of 380 million to $390 million we.
We expect to see sustained strength from award of direct residential customer base and and other at home channel and improvement from a water direct commercial customer base as we progress throughout the year.
With that I'll turn the call back to John to move Us the 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.
Operator, please open the line for questions.
And as a reminder to ask a question you and need to press star one on your telephone keypad again that is star one to ask a question.
And your first question comes from the line of Kevin Grundy of Jefferies.
Great. Thanks, and good morning, everyone.
Good morning, Kevin and a two.
Two questions for me.
First on guidance and then the second on capital deployment. So first with respect to the guidance that you maintain your revenue outlook took up all of your EBITDA outlook, which is encouraging it sounded like there will be some incremental benefit from tuck in M&A can you just talk about maybe some of the other factors driving your improved earnings outlook.
Yes, it was.
Partially it would be the uncertainty about the first quarter. So we did do better than we expected, which gives us confidence as we move through the year. We're also encouraged by the early results in April So just fortified the if you will it strengthens our confidence and delivering against that commitment.
Your comment on tuck ins. It is also worthy of note. If you think about of we've historically done $40 million to $60 million over the course of the year. So when we say we pulled them forward, we would still hit the high end of the range, but frankly do it in nine months or less right because we haven't done anything to date.
Yeah, I was going to pick up on that too just.
More broadly, though with respect to accelerating tuck in M&A and then the buyback announcement just to put a finer point on this is it fair to say, there's likely a longer term timeline with respect the larger scale M&A because I asked the contact I think there is some ambiguity around the equity deal.
On the acquisition there from one rock and Metropolis that maybe there was.
Some potential.
And that there would still be some opportunity there I suspect that that is not likely given particularly given your commentary around accelerated M&A and then the buyback announcement.
And just confirm that and then Relatedly, maybe just talk about the cadence of tuck in M&A and buybacks and your outlook and then I'll pass it on thanks.
And I'll take the first one and I'll have Jay cover the the backend.
The former ready refresh business Blue Triton.
And then use to make strategic sense, but frankly, it's a nice to have none of them must have for us and we of course will we'll maintain our financial discipline.
But the good news and they're all good things happening and our company we have a robust tuck in pipeline of 40 to 60 million Jay can talk about the cadence.
We approved the share repurchase of 50 million, which is the way to return capital to our shareholders, while continuing our dividend, we're going to investing capex and we believe that the customer.
Countries come out of the Lockdown that we'll see a nice rebound on commercial and I'll give you. One example, and the month of April and Israel small five per cent of our business overall, we enjoyed and 60% topline growth and they are open and so.
That gives us real confidence and how our business complete so we're focused on what we do which is get that 5% top line manage our cost enjoy the benefit of the returning as lockdowns change overtime.
And on cadence of tuck ins, it's definitely going in the back half of the year weighted we've got a very good pipeline going now, but it takes time to get through due diligence and finalizing the deal. So we wouldn't expect to close anything much first half of the will really be the second half of the year and with regards to the guidance. We give I really don't include tuck ins.
And my guidance until the acquisitions are completed.
And my guidance currently does not include the benefit of any tuck ins.
Okay very good. Thank you guys. Good luck.
Thank you.
Your next question comes from on the line of John and Sunpower of CIBC.
And good morning, everyone.
Morning, John.
I wanted to start with with the.
Customer behavior, and I would like to get your thoughts on whether you think the additional residential customers you've added over the last call. It 12 to 14 months can be sticky in the post pandemic environment I appreciate the color on Israel. That's interesting, but you also referenced the slightly higher quit rate, but just would like to get your thoughts on on any <unk>.
Do you have on customers' stickiness of the longer term.
And if you look at our quit rate it was.
19.8 versus like $19 six something so it's really flat on a year over year basis.
We're not seeing any behavior differences in terms of how customer residential customers performed post pandemic and frankly, Pete pre pandemic other than our investments in customer service and the App and all of the delivery side of our business has generally made customers sticky.
Sure.
And then the on the commercial side it really comes down to when do they reopen.
So we see the small business reopening, but jay's point there are still restrictions on how many people can sit and of barbershop and how many people can fit in the dent the sharp sell while they're open of consumption is a little bit lower so that to us as the tailwind that should help us go forward. So so we're pretty pleased with where the residential and commercial customer base of CIT.
And frankly April only only improve that.
And you look at you look at April that's one thing I'm sure, we're going to get and asked the question on.
North America water direct and exchange is up a little over 13% in April and that's with the residential.
Being up and a little over 4% and commercial.
As more normalized is up and of plus 25% you look at Europe, which is also normalizing.
And our Europe business is up over 30%.
And you look at Israel that has fully reopened the April was up more than 60 per cent.
So we are seeing residential now that we've done lapping Q1 going into April and our residential growing at 4% to 5%. That's shown we're maintaining our our customers and growing that business and the commercial reopening are starting to show.
And our volume now that we've we're done lapping Q1.
Okay. That's very helpful. Thank you for that and then my follow up is on on the.
E Commerce side I'm curious what you can disclose here either on the percentage growth or percentage of total sales, but with just the appreciate any more color on on the e-commerce side of the business, whether internally or through your distribution partners.
Yeah the.
And that business today is small.
And so we could double the business and frankly, it would be very had very little impact on us, but importantly, and we referenced this and our last call. We've made some the investments on digital leadership. So we're upping our game on all things digital which will manifest itself in our existing sites be award of Dot.
Our sparkling dot comments and example, but it will also extend into our legacy Primo E Commerce transactional sites, which is the way for us to sell more dispensers.
So we're bullish about where it goes but we have the build all of the capability to take advantage of this and scale it.
And we'll scale it frankly, both the North America and across our Eaton business and Europe and Israel.
Okay understood. Thank you very much.
Thanks, John.
Your next question comes from the line of Daniel Moore of CJS Securities.
Good morning, Dan Good morning, Dan Good morning, Jay Good morning, Tom Thanks for taking the questions.
Maybe just a little bit more color and in the Europe.
You know it sounds like you would maybe describe it at least as having stabilized in terms of the commercial the commercial business talk about the green shoots you're seeing there and sort of.
Sequential growth from month to month, you mentioned year over year, but just any more color there would be helpful.
Yeah, Yeah. So if the if you go back and it and.
The first prior to January it was challenging because there was a spike and Europe post the Christmas and new year's holiday.
So and then it recovered and then there was because of some growth and cases, you saw a little bit more and more locked down.
The March appears to have stabilized and we're pleased with where we are in April but you know year over year comp of course. It was was bleak last year as you'll recall and.
And right now that's pretty encouraging because that's coming out of the Easter holiday and Europe right. So we didn't see meaningfully different.
Locked down.
So we think the business and we see it by country and it's recovering country by country, they're all a little bit different eastern Europe is performing a wee bit better than western Europe.
And we know that over the course of the the next quarters that we'll expect to grow our business in Europe.
Based on the experience of last year.
Israel, It's true that's been the single biggest change right, but theyre all of it right. So.
It really depends on how quickly people open and take it to California, right. So of California opens on June 15th it really depends on how they define open but that on the North American site gives us some optimism about how the commercial business will perform here in the states and and on the on and are rolling out our for our model to Europe, we're progressing.
And it really well and April we started to sell and dispensers and Europe of early stages, but and it's good that we've begun it exchange locations and <unk>.
Last quarter, I talked about and are rolling out and the Baltics, and Russia, and we filled and some gaps and and and I have right around a thousand.
Units added market, there and were.
And I encourage and traffic and conversion of our e-commerce websites in Europe. So.
And overall, yes, the sequential sequential trend.
And we're still and I've seen anything dramatic year over year growth.
Growing the 30 plus percent is key but we're seeing the right trends start to take root over in Europe.
Perfect and one.
One more.
And you were very clear and your comments as it related to the the <unk>.
Ready refresh assets and its greatly appreciate it and if the stars the order of line at some point how much due diligence would you have left to do and in other words, how quickly could the deal come together.
And I think Dan and I think we've provided all of the comments that we want on this topic. We're really excited how our business is performing and everything we have in front of us and I think we've commented all we wanted to do on that opportunity.
Okay.
And lastly, just your ability to attract the necessary labor and drivers without much inflation if some.
And the recovery accelerates more than expected I appreciate the color.
Yes and <unk>.
Turns of labor there are pockets that are more challenging and others.
We have a fully developed talent acquisition team that are focused on the hotspots.
And they were less and less impactful today in Europe, but certainly in the U S. We have those pockets and we're taking the appropriate steps to.
Pay the white with the correct wages to attract.
And to Jay's point, we're taking pricing activities to make sure we cover the cost of inflation.
So we think that we have the right actions tactics in place. So that we can continue to provide customers that service they expect.
Perfect. Thanks again appreciate it.
Thanks, Dan.
Your next question comes from the line of David the lay of Canaccord Genuity.
Hi, guys.
And good morning, just one quick one for me is as most of them and have been answered, but with the sort of shift back to some commercial volumes coming back online here and quite a strong way.
Are there any other incremental cost I guess outside of labor that you would need to add that the marketing was something you guys mentioned you were going to have a bigger push on the on the commercial side no pre COVID-19.
Yeah, there's a couple of points here, so let's talk about the route operations and the customer delivery, we have certain expectations in terms of productivity and Youll recall last year. We took actions that downsides very quickly we'll put those back slowly so that we maintain productivity levels that we that we enjoyed when we took the actions last year net that's a key.
Driver of our cost structure.
We have said and we will continue to build on our investment on sales and marketing.
So as the markets open is going to be an opportune and Ian and won't make investments back into sales and marketing appropriately.
Particularly if you think about the marketing side and as we invest and build out this digital platform, we got and meet the invest some resources there all around communicating to customers what are your way.
At the appropriate price for new customer acquisition cost.
Great. Thank you very much.
Thanks, Doug.
And again to ask a question press star one and.
Your next question comes from the line of N G and it takes the era of J P. Morgan.
Hello, and good morning.
Hi.
Good morning.
Just wanted to follow up a little bit on the guidance. So I. Appreciate you raised on the senior.
Synergies have been coming in better than anticipated and faster.
And again on the top line I, obviously understand the level of and <unk>.
Levels of certainty of course of the commercial business, but it seems as if April hasn't been coming in.
And strong so help us understand how to bridge like the commercial against the residential residential continues to be keeping its momentum.
Is that just to see how the second half of this play out before and I assure day to say or and that's the reason why you kept your 5% top line growth and help us bridge that.
I mean, there's a couple of both topline and bottom line, let me see if I can answer that question.
You keep in mind as part of our full year guidance. It is also lapping.
Q1, which we were lapping the pantry load and both Tom and I have talked a lot about that so that's pushing down our full year average I think if you look at our guidance for Q2, we've guided about 10% growth as we are lapping the the largest amount of shutdowns of lockdowns that happened last year.
And when you look at and the average of very complex first half of the year, we think 5% topline growth.
As important and you look at the EBIT of side.
We are basically within our forecast, which shows roughly you could take the middle of the range of $20 million of EBITDA growth, you could say 10 million as synergies and 10 million as true growth and the pantry loading that we saw probably took I mentioned it last quarter and mentioned again this quarter high single.
<unk> EBITDA type effect, so when you add that on and overall I think we're very happy with with both where our topline and bottom line guidance says while at the same time as Tom just mentioned spending more behind sales and marketing to make sure. We continue the organic growth we're talking about.
No that's wonderful and then on the announcements and well.
Put back the buyback program.
We enacted like relative to your priorities and you can understand the transformation of the M&A that we've discussed before would be a top priority and then if I can and then buybacks is that the way we should be thinking.
Yeah I think.
If you think about 2021.
We're cautious about tuck ins coming out of 2020, because we didnt have clarity about how the world would develop so we're going to take that 40 to 60 million and I said earlier, you'll see that and the back half of which which he has a fulsome opportunity for us in terms of how much we can actually execute.
So I wouldn't want to spend much higher than that over at let's call. It a six month period frankly.
And so we wanted to make sure of that we do all of the things we're supposed to do to properly onboard new customers and you look.
And our liquidity position for the year of the free cash flow, we're going to generate even after spending at the high end of of our tuck and range. We have the extra cash to to look to do opportunistic share buyback programs and that's where we're going to deploy our excess cash that we're going to generate per share.
Okay, That's fair I'll pass it on thank you.
Thank you.
Your next question comes from the line of pop out and much of Raymond James.
Good morning.
Hi, good morning, Thanks, Thanks for taking the question.
I wanted to follow up on M&A, you, obviously of a pretty diverse geographic footprint and you can either add.
Additional assets and existing areas of operation or potentially going into a brand new geography, especially in Europe.
Do you have a preference for either one as you allocate that.
Tuck and capital.
Yeah, there's a couple of ways to think about it and some will be driven by local market execution. So that we of the right team in place that can handle.
Of our size acquisition that is.
Certainly prioritize returns first.
So the best returns go to the front of the bar list.
But if you look so we'll have.
Several and in the U S.
We also will have some in Europe, and we will extend to hopefully adjacent geographies.
So it's not.
It very easy for Us to then hop the board of particularly in Europe. As an example, so we're looking at opportunities.
And European ish market.
In real time.
And I understood.
Let me also follow up on on the comment about kind of reopening lockdowns easing at least in North America. The one exception to that is Canada, with Ontario, Quebec, Alberta couple.
Couple of other provinces and pretty harsh lockdowns at the moment are you noticing any worsening in those markets.
The March April timeframe.
No it's actually been better.
Little bit right, so it's still and the.
And to your point pretty much full locked down.
But we're beginning the seats on some green shoots on residential customer base. So we're also making some investments there.
And that would go back if you go back to the beginning of no contact delivery and how consumers value of that so we've seen some of that and Canada, but we expect Canada will be slower.
Based on the timing of when they all get go through the vaccination process if they choose to.
Okay understood. Thank you very much.
Thank you.
And again to ask a question press star one.
And your next question comes from the line of Carla Casella of JP Morgan.
Good morning, good morning.
Hi, sorry about that.
And then I'm sorry.
I'm just wondering if you've done the recent capital structure transaction and with the bond issue and.
Anything on your plate in terms of further capital structure of you mentioned the buyback and that.
Anything on the debt side.
I mean, we are now very happy with our capital structure. Our debt are both the euro and the U S. Tranche are all long maturity at good rates. So that is what we're looking to do we have a little bit drawn down on our on our cash flow revolver.
And we're use that off and on to do tuck ins operate the business and you know that will move up and down a little bit but on the senior notes no no plans to do anything more.
Okay, and then also on your cost of goods sold and and input cost can you give us a visit of a breakout of your on components of of Cogs, how much of it is related to the resident of raw material costs versus labor and <unk>.
And as transportation.
It is one of the car new bottle purchases, which is.
A big component of capitalized and of capitalized because we get 50 trips and a less of quite a long time, so it's not in cost of goods.
And if you think about 50 trips on the price of the bottle, it's really de Minimis in terms of its impact to us in terms of any resin changes and.
And you will remember, we also have energy surcharge and delivery of feeds that help offset and.
Energy cost changes and general inflation and.
So.
We've managed to avoid we've implemented that.
Policy and it and it's worked quite nicely for us to insulate the slinks.
Okay, great. Thank you.
Youre welcome.
And there are no further questions at this time and I'll turn the call back over to Mr. Carlos.
This concludes primo as first quarter results call. Thank you all for attending.
And you May now disconnect at this time.