Q1 2021 Primo Water Corp (MISSISSAUGA) Earnings Call
[music].
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 other 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.
During this time simply press Star then the number one on your telephone keypad. If you like towards 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's first quarter 2021 earnings Conference call. All participants are currently in 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 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.
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 as to the ball.
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.
I am virtually accompanied by Tom Harrington Primo as Chief Executive Officer, and Jay Wells Primo as 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.
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 in greater detail provide an update on ongoing synergy work and offer our outlook for the second quarter on 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 commentary, we will be discussing our continuing operations, which incorporates the legacy 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.
On our financial results were at the high end of our expectations on both revenue and adjusted EBITDA.
On a revenue of $478 million grew 1% compared to last year, and adjusted EBITDA increased 8% to $76 million.
Our strong results are impressive given that we were cycling the effects of pantry loading that we experienced during the early days of depend on Nick.
A large portion of our revenue decline was from on non core coffee service business.
We're a pure play water businesses performed well and once again validates our strategy to focus on water solutions.
During the quarter the extreme winter weather events in February created a brief but challenging operating environment in several markets.
I'm incredibly proud and appreciative of the way our teams in these markets responded.
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 wherever and however, they want it remains at the center of who we are.
The demand for our at home products and services remains elevated 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 to be openings in 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.
In the March for lease of the ADP small business report.
All businesses in the U S.
As defined by having 1% to 19 employees on a near full recovery when compared to pre pandemic employment levels.
U S businesses with 20% to 49 employees are at an 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 commercial segment activity recovers.
As evidenced by trends in 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 in our residential customer base and at home consumers, who use our water derived in exchange for water refill and filtration services.
Yeah.
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 delivered directly to their doorstep and a safe no contact way.
Includes everyday essentials like healthy clean drinking water.
We are well positioned to benefit from these trends as our overall digital and E. Commerce efforts continue to progress and our water Youre 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, we 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 declined from its record high of a year ago, driven by service disruptions in markets that experienced new lockdown and the short term impact of the U S weather events.
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 in the health and wellness category continues to support a prospect of gaining share of the broader beverage category at the expense of sugary sweetened beverages.
<unk> continues to 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 sort is expected to continue to decline.
Tumor demographics also favorite bottled water as Gen Z and millennials have demonstrated their preference for bottled 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% to $29 million and growing as younger generations have adopted bottled water as the primary method of water consumption in the home.
Dispenser sales provide an important entry point to access these households, and capitalize on our for our recurring razor razor razor blade revenue model.
On our internal research indicates debt among last year's North American dispenser sell through sales of 1 million units, 60% of respondents are new to the category, 30% are replacing a previous dispenser and the remaining 10% are adding an additional dispense it to an existing for secondary residence.
Additionally, although it is likely to become on future Dispensary household research indicates that consumer preference at 45% for water direct.
30% per foreign exchange and 25% per refill.
We should continue to capture our fair share of this growth as our for our model remains one of 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 revenue growth annually.
The incremental benefit from on 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 in 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 a new $50 million share repurchase program, which expires on may nine 2022.
Following our successful transformation into a pure play 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 an opportunistic return of capital plan in 2021.
Our new share repurchase program reflects our confidence in a consistent and recurring nature of our model. 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 in our U S operations and our European on water business has been carbon neutral for nine consecutive years.
In Europe, we saw a 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 Springs 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.
We subsequently obtain net same certification for the second half on a spring wells our tie the spring side in 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, but the J to review, our first quarter financial results in greater detail.
Thank you Tom and good morning, everyone.
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 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 world segments Global revenue from residential customers and at home consumers grew 25% and global revenue from commercial customers declined by 23% in 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 search volume caused by pantry loading and the effect of lower volume in our commercial channel.
Adjusted EBITDA 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 for.
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.
Compared to $255 million debt.
Decline was the result of cost reduction initiatives in response 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 this 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 to slowly return in 2021, as we restart certain promotional and marketing initiatives.
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.
In North America revenue increased 4% to $366 million compared.
Compared to $351 million.
The increase was driven by the legacy Primo acquisition and strength within our residential customer in 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 continued operating leverage improvement and ongoing synergy realization.
On a pro forma basis, adjusted EBITDA was lower by 2% compared to Q1 2020, when we grew adjusted EBITDA by $20 million.
Turning to our rest of World segment revenue decreased by 9% to $113 million.
Excluding the impact of foreign exchange revenue declined by 14% for.
Decline was driven by lower revenue from our water direct commercial customer base and coffee services.
Adjusted EBITDA in the segment decreased 1% for $15 million as declines from water direct and coffee services businesses for 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 a cash balance of $102 million and available net borrowing capacity on our cash flow revolver of $194 million for a combined total liquidity position of $296 million.
This equates to a net leverage ratio of three five times and we continue to target a post synergize net leverage ratio of 3.0 times.
Also as we've 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.
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 with.
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 for another $7 million in the first quarter of 2021 and expect to achieve $1 million per quarter for the balance of 2021.
And the remaining $7 million of synergies will be realized in 2022.
As Tom said, we are pleased with our first quarter results and the strength of our residential channel. Despite the lapping of pantry loading in the prior year.
Many of our commercial customers are still grappling with when and how to fully reopen but we're starting to see some more active commercial customers, albeit consuming.
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 operations to be between $490 million and $510 million.
We also expect that our second quarter adjusted EBITDA will be in 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.
Now between 380 and $390 million.
We also expect around $15 million for 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 in our ability to achieve for 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 of 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 are recycled on 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.
Cost of sales the impact for third party freight is up slightly compared to recent quarters and that effect is embedded in our outlook.
In terms of our growth algorithm. After 2021, we expect to grow organic revenue by roughly 5% per year generate on 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 will now turn the call back to Tom.
Thanks Jay.
Moving forward, we are focused on executing our differentiated what are your wide 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 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.
Helping meaningful relationships with new online retailers.
<unk> customers with new and exciting promotion and implementing rewards programs.
We're developing new customer acquisition strategies to diversify our acquisition channels further reduce our cooler quit rate and improve customer retention.
In Europe, we are accelerating on water refill water exchange it more on a dispenser businesses to diversify our customer base and capture a growing demand in the residential market.
Last month, we began introduced dispenser sales in Europe on.
Although these sales are off on a very small base initial excitement levels are high.
Our existing presence and leadership position in Europe makes the rollout of these products and services relatively low cost.
These efforts are well underway and we expect to see the benefits of the year for guesses.
Additional focus areas include protecting on efficiency improvements and leveraging our highly variable cost structure.
Remaining focused on the identified synergy actions related to the legacy Primo acquisition <unk>.
Identifying and executing highly accretive tuck in acquisitions across North America and Europe.
In seeking new ways to further improve our standing as an ESG and sustainability leader <unk>.
Including our new goal of achieving carbon neutrality in 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%.
For adjusted EBITDA to be in the range of $380 million to $390 million we.
We expect to see sustained strength from our water direct residential customer base and in other at home channels.
An improvement from our water direct commercial customer base as we progress throughout the year.
With that I'll turn the call back to John to move Us for 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 will 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, good morning, everyone.
Good morning, Kevin.
Two questions for me for.
First on the guidance and then second on capital deployment. So first with respect to the guidance you maintained your revenue outlook took up 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 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 for to five if you will both strengthen our confidence in delivering against that commitment.
Your comment on tuck ins. It is also worthy of note. If you think about it 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 Mike because we haven't done anything to date.
Yes, I was going to pick up on that too.
More broadly, though with respect to accelerating tuck in M&A and then with the buyback announcement just to put a finer point on this is it fair to say there is likely a longer term timeline with respect to larger scale M&A.
On the contact I think there is some ambiguity around the net equity deal post the acquisition there from one rock in Metropolis debt may.
There was some potential.
But there will still be some opportunity there I suspect that is not <unk>.
If you given particularly given your commentary around accelerated M&A and then the buyback announcement.
You could 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.
I'll take the first one on that Jay cover the backend.
The.
Former ready refresh business Blue Triton.
<unk> to make strategic sense, but frankly, it's a nice to have not on must have for us and we of course, we will maintain our financial discipline.
But the good news is they are all good things happening in 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 a 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 I'll give you. One example in the month of April in Israel small five percentage of our business overall, we enjoyed 60% topline growth and they are open so.
That gives us real confidence in our business complete so we're focused on what we do which is get that 5% topline manage our cost enjoy the benefit of the returning as lockdowns change overtime.
Over time.
And on cadence of tuck ins, it's definitely going to be back half for the year weighted we've got a very good pipeline going now, but it takes time to get through due diligence from finalizing the deal. So we wouldn't expect to close anything much first half the year will really be the second half of the year and with regards to the guidance. We give I really don't include tuck ins.
In my guidance until the acquisitions are completed so my guidance. Currently does not include the benefit of any tuck ins.
Okay very good. Thank you guys. Good luck.
Thanks, Thank you.
Your next question comes from on the line of John Sunpower on CIBC.
Hey, good morning, everyone.
John.
I wanted to start with with.
With customer behavior, and I would like to get your thoughts on whether.
The additional residential customers you've added over the last call. It 12 to 14 months can be sticky in a 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 any insight you have on customers' stickiness for the longer term yes.
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 pro forma post pandemic and frankly Pete prepay.
Pre pandemic other than our investments in customer service in the App then all the delivery side of our business has generally made customers stickier.
And then 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 in a barbershop how many people can fit in the dental shop sell while they are open to consumption is a little bit lower for that to us is a tailwind that should help us go forward. So so we're pretty pleased with where the residential on a commercial customer basis.
Today, and frankly April only only improve that.
When you look at you look at April that's one thing I'm sure we're going to get asked the question on.
North America water direct and exchange is up a little over 13% in April and Thats with the residential.
Being up a little.
Over 4% in commercial as more normalized is up plus 25%.
Look at Europe, which is also normalizing on I mean.
Our Europe business is up over 30%.
And you look at Israel that has fully reopened for April was up more than 60%.
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 in growing that business and the commercial reopening for starting to show.
On our volume now that we've we're done lapping Q1.
Okay.
Okay.
Very helpful. Thank you for that and then my follow up is on on.
E Commerce side I'm curious what you can disclose here either on a percentage growth or percentage of total sales, but would just appreciate any more color on on the e-commerce side of the business, whether internally or through your distribution partners.
Yes.
That business today is small.
So we could double the business and frankly, it would be very had very little impact on us, but importantly, and we referenced this in our last call. We've made some investments on digital leadership. So we're upping our game on all things digital which will manifest itself in our existing site to be awarded dot.
Com or spark, what's dot com as an example, but it will also extend into our legacy Primo E Commerce transactional sites, which is a way for us to sell more dispensers.
So we're bullish about where it goes but we have to build all of the capability to take advantage of this and scale it.
And we'll scale it frankly, both in North America and across our <unk> business in Europe and Israel.
Okay understood. Thank you very much.
Thanks, Ken.
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 my questions.
Maybe just a little bit more color in Europe.
It sounds like you would maybe describe it at least as having stabilized in terms of the commercial for 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.
Yes, yes, so if you go back in it.
The FERC prior to January it was challenging because there was a spike in Europe post the Christmas and new year's holiday.
So and then it recovered and then there was because of some growth in cases, you saw a little bit more more locked down.
March appears to have stabilized we're pleased with where we are in April but year over year comp of course it was.
<unk> last year, as you'll recall and right now thats pretty encouraging because that's coming out of the Easter holiday in Europe right. So we didn't see meaningfully different.
Lockdowns.
We think the business and we see it by country, it's recovering country by country, they're all a little bit different eastern Europe is performing a bit better than western Europe.
And we know that over the course of the next quarters debt will expect to grow our business in Europe.
Just on the experience of last year.
Israel, It's true that's been the single biggest change right, but they are open right. So.
It depends on how quickly people open take it to California, right. So if California opens on June 15th it really depends on how they define opened.
But that on the North American site gives us some optimism about how the commercial business will perform here in the states and on the <unk>.
Rolling out our for our model to Europe for progressing really well in April we started to sell on dispensers in Europe.
Early stages, but.
It is good that we've begun it exchange locations.
Last quarter talked about rolling out on the Baltics, and Russia, and we filled in some gaps now have right around a 1000.
Units added market there.
And I encourage in traffic and conversion of our e-commerce websites in Europe. So.
Overall your assets the sequential sequential trend.
We're still not seeing anything dramatic year over year growth.
Growing 30, plus percent is key but we're seeing the right trend start to take root over in Europe.
Perfect.
One more.
You were very clear on your comments as it related to the <unk>.
Already refresh assets greatly appreciate it if the stars rely on at some point how much due diligence would you have left to do in other words, how quickly can a deal come together.
And I think Dan I think we've provided all 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.
So for the recovery accelerates more than expected I appreciate the color.
Yes.
<unk> of labor there are pockets that are more challenging than others.
Have a fully developed talent acquisition team that are focused on the hotspots.
And they were less 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 debt 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 with service they expect.
Thanks again I appreciate it.
Thanks, Dan.
Your next question comes from the line of David <unk> of Canaccord Genuity.
Good morning, guys.
Hey, Good morning, just one quick one for me as most of them have been answered, but with the sort of shift back to some commercial volumes coming back online here quite a strong way.
Are there any other incremental cost I guess outside of labor that you would need to add that marketing was something you guys mentioned you were going to have a bigger push on the on the commercial side pre COVID-19, yes.
Yes, there's a couple of points here, so let's talk about the route operations and our customer delivery, we have certain expectations in terms of productivity and Youll recall last year. We took actions that downside very quickly we'll put those back slowly so that we maintain productivity levels debt that we enjoyed when we took the actions last year net.
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 opportunity and we'll 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're going to need to 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.
Your next question comes from the line of Andrea Teixeira of Jpmorgan.
Hi, good morning.
Okay.
This morning, I, just wanted to follow up a little bit on the guidance. So I. Appreciate you raised on thank you.
Synergies have been coming in better than anticipated and cluster.
So again on the topline I, obviously understand that level.
The level of uncertainty for us for the commercial business, but it seems like April has been coming in.
Strong so help us understand how to bridge like the commercial against debt.
The financial residential continues to be keeping its momentum.
Is that just to see how the second half is going to play out before and it's too early to say or and Thats. The reason why you kept your 5% top line growth and help us bridge that.
I mean, there is a couple of both topline and Bottomline, 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 loading 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 lockdowns that happened last year.
And when you look at the average of very complex first half for the year, we think 5% topline growth.
As important and you look at the EBITDA side.
We are basically within our forecast, which shows roughly you can take the middle of the range of $20 million of EBITDA growth, you could say $10 million.
Synergies from $10 million is true growth.
On the pantry loading that we saw probably took I mentioned it last quarter I mentioned again this quarter high single digit EBITDA type effect. So when you add that on overall.
We're very happy with both where our topline and Bottomline guidance those 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.
Well put back the buyback program.
We enacted like relative to your priorities for anything I understand that transformational M&A debt, we discussed before would be a top priority and then if I can and then buybacks is that the way we should be thinking.
Yes, I think.
If you think about 2021.
We were 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 as I said earlier, you'll see that in the back half, 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 a let's call. It a six month period frankly.
So we wanted to make sure that we do all the things we're supposed to do to properly onboard new customers.
Look at our liquidity position for the year the free cash flow, we're going to generate even after spending at the high end of our tuck in range. We have the extra cash to look to do opportunistic share buyback programs.
That's where we're going to deploy our excess cash that we're going to generate for share.
Okay, That's fair I'll pass it on thank you.
Thank you.
Your next question comes from the line on pop out much Manav of Raymond James.
Good morning for that.
Hi, good morning, Thanks, Thanks for taking the question.
Wanted to follow up on M&A, you, obviously have a pretty diverse geographic footprint.
You can either add.
Additional assets in 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.
<unk> capital.
Yes, there's a couple ways to think about it some will be driven by local market execution. So that we have the right team in place that can handle whatever.
Size acquisition that is.
Certainly prioritize returns first.
So the best returns go to the front on <unk> list.
But if you look so we'll have.
Several in the U S.
We also will have some in Europe, and we will extend to hopefully adjacent geographies.
So it's not.
It's very easy for us to then hop the border, particularly in Europe. As an example, so we're looking at opportunities and net.
Eastern European ish market.
In real time.
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.
All other provinces it pretty harsh lockdowns at the moment are you noticing.
Any worsening in those markets.
March April timeframe.
No it's actually been better.
A little bit right. So it's still in the.
For your point pretty much full lockdown.
But we're beginning to see some some green shoots on residential customer base. So we're also making some investments there.
And that will go back if you go back to the beginning of no contact delivery and how consumers value that so we've seen some of that in Canada, but we expect Canada will be slower.
Based on the timing of when they all get go through the vaccination process If day Tuesday.
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 Jpmorgan.
Good morning, good morning.
Hi, sorry about that.
Alright.
I'm just wondering if you've done the recent capital structure transaction with the bond issue.
Anything on your fleet in terms of further capital structure, you mentioned the buyback, but 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 used that often on to do tuck ins operate the business and that will move up and down a little bit but on the senior notes no plans to do anything more.
Okay and then also on your coffee that is solid and input costs.
Can you give us a breakout of your components of Cogs, how much of it is related to the resin or raw material cost versus labor.
On versus transportation.
Our new bottle purchases, which is us.
A big component of capitalized and net capitalized because we get 50 trips and they last for quite a long time, so it's not in cost of goods.
And if you think about 50 trips on the price of a bottle, it's really de Minimis in terms of its impact to us in terms of any resin changes and you will remember we also have energy surcharge and delivery fees that help offset.
Energy cost changes and general inflation.
No.
We've managed to avoid we've implemented debt.
Policy and its were quite nicely for us to insulate those links.
Okay, great. Thank you.
Youre welcome.
And there are no further questions at this time I will 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.