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Primo Water Corp  (NASDAQ:PRMW)
Q4 2018 Earnings Conference Call
March 05, 2019, 4:30 p.m. ET

Contents:

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Primo Water Fourth Quarter 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will host a question-and-answer session and our instructions will be given at that time. (Operator Instructions) As a reminder, this conference call may be recorded.

It is now my pleasure to turn the conference over to Katie Turner from ICR. You may begin.

Katie Turner -- Investor Relations

Thank you. Good afternoon and welcome to Primo Water's Fourth Quarter and Full Year 2018 Earnings Conference Call. On the call with me today are Matt Sheehan, Chief Executive Officer; and David Mills, Chief Financial Officer. By now, everyone should have accessed the release that went out this afternoon at approximately 4:05 P.M. Eastern time. If you have not received today's press release, it is available on the Investor Relations portion of Primo Water's website at www.primowater.com.

This call is being webcast, and a replay will be available on the Company's website. Before we begin, we would like to remind everyone that the prepared remarks contain forward-looking statements, including financial guidance, and management may make additional forward-looking statements in response to your questions. The forward-looking statements should be considered within the meaning of the applicable securities laws and regulations regarding such statements. Many factors could cause actual results to differ materially from these forward-looking statements, and we can give no assurance of their accuracy. And Primo Water assumes no obligation to update them.

We encourage participants to carefully read the section on forward-looking statements included in the press release issued this afternoon and in all documents that Primo Water files with the SEC.

And now I'd like to turn the call over to Primo Water's CEO, Matt Sheehan.

Matt Sheehan -- President & Chief Executive Officer

Thanks Katie. Good afternoon everyone and thank you for joining us to review our fourth quarter results. For our call today, I will give a summary of the quarter and year, discuss continued tap water issues consumers face each day and finally provide an update on some progress on key initiatives. David will then provide more detail on the financial results of the quarter and outlook for 2019.

Let's start with a brief overview of our quarterly and annual results, as well as a few key metrics. Sales for the quarter increased by 3.8% to $70.9 million which is impressive given the tariff and retailer year end inventory pressure we faced in dispensers, along with the operational focus on Refill. More to come on that shortly. For the year, sales increased 5.6% to $302.1 million. Even with the impact of the tariff, our dispenser sell-thru in Q4 was 158,000 units and we finished the year with sell-through growth of 10% to a record 725,000 units.

US exchange same-store unit growth exceeded our expectations with a very impressive 13.3% comp for the quarter. This is the 27th consecutive quarter of 6% plus same-store unit growth. More impressive however, this is the fourth consecutive quarter of an increased growth rate driven by our dispenser sell-thru, connectivity and other marketing initiatives. To put this in context, the 13.3% growth rate is at level not seen since 2012 during Hurricane Sandy, and that was at a time when our unit base was significantly smaller.

For the full year of 2018, we had double-digit growth of 10.7% and head into 2019 with momentum fueled by our marketing strategies. On adjusted EBITDA, we achieved our expectations coming in at $11.8 million for the quarter and $55.4 million for the year. And Refill, I am pleased with our attention to uptime through our credit card reader installation, which is on schedule as we have installed 11,224 units as of today. More on that shortly.

For that financial and key metric information in mind and before getting into the key initiatives, it is important to remind you of the tap water quality issues we continue to see. We believe tap water issues will continue into the foreseeable future and will attract new consumers to our business. Each week families continue to face hundreds of boil water alerts and major US cities continue to disclose issues with their municipal water systems.

Here are just a few recent examples. Recent heightened awareness around PFAS and man-made chemical continuing to appear across the US. Because of its prevalent usage for water proofing and as a fire retardant and its presence in key household items, like textiles and non-stick cookware. The increase in events in water quality notifications will likely continue to rise. Since the chemical was not impacted by boiling water, it has been labeled the next lead and potentially a more severe issue to rectify in this country.

Additional research conducted by the Journal of Environmental Health, recently showed that nearly 5.6 million Americans have an above-average exposure to nitrate concentrations, particularly in the Midwest and West. Nitrates also tend to be a good marker for the presence of other contaminants in drinking water, as nitrates are something that should be removed, meaning other issues could be reaching the tap water of these communities.

Lastly, recent studies confirm that the number of American households that depend on mostly our only tap water continued to decline. We are not surprised by these tap water issues and believe their occurrence will only accelerate in the future along with the media coverage. More than a pure quality that we offer, consumer surveys consistently report an increase in home consumption of 25% to 30% when using the Primo solution. All-in Primo remains very well positioned for growth, as our household offerings drives a behavior change in greater water consumption, doubling the value proposition for families looking to improve their health and wellness.

Moving on, let's dive into the key initiatives that give us confidence in the business. I'll address some notable highlights across our five key strategies. First, grow household penetration; second, improve connectivity of our dispensers to our water; third, increase same store sales; fourth, optimizing our cost to serve; and fifth, faster highly engaged teams.

First, let's look at our household penetration of connectivity, our first two and highly related strategies. We are the clear market leader in dispenser sales at retail, and are enhancing our focus on both growing our sell-through of dispensers and increasing the connectivity to our water. This focus has led to an inflection in the unit growth rates of our dispenser and exchange businesses throughout 2018. However, as it relates to dispensers, we did face a short-term headwind in Q4 related to retailers executing at full quarter of increased on-shelf pricing due to the tariffs, but we were still able to drive unit sell-through of 158,000 dispensers.

A few notes on the tariff. First and very importantly, we worked hard for an exemption from the tariff for the category, which was received in December. Additionally, we have began working with retailers during this current quarter and nearly all have recently lowered dispenser pricing to pre-tariff levels, a few getting even more aggressive by lowering prices even further.

We believe that lower retail prices will drive sell-through in Q2 and beyond. Second, it is important to consider that sell-through comp and dispensers is different from most categories. Even if our growth rate slows or goes negative in a quarter, we're still adding new water households that drive our water business growth. On a per store basis, adding just one new household can have a positive long-term impact on our water results. Yet we sold 158,000 dispensers, in the quarter across our retail network, with a greater connectivity rate toward water than in the past. That is the nature of a razor blade model. The dispenser growth rate may slow, but we can still add new water households.

Moving on from the tariff, a specific bright light in our dispenser business is our e-commerce performance. We delivered another strong quarter of e-commerce unit sell through, which increased 76% in the quarter. Even with the tariff in place, we were able to drive social media awareness activities to significantly enhance sell-through. For example, primowater.com and Amazon sell-through increased over 400% in the quarter.

Additionally, the e-commerce sites of our key retailers were also particularly aggressive during the tariff window, with one running a special on the OPP top-loader at $70 for a period of time, versus the typical $99 price point. Never mind the post-tariff price point of $118. We see e-commerce as a key lever for us, specifically since this is, still a relatively small part of our dispenser business.

We began 2018, with only 6% of sell-through from e-commerce and finished with approximately 20%. This is a growth vehicle we frankly didn't have over a year ago and we believe that e-commerce will continue to provide a tailwind in 2019 and beyond. While this percentage will fluctuate from quarter -to -quarter, we are now even more confident in our ability to create new Primo water households through both brick and mortar stores as well as e-commerce.

Lastly, as it relates to our first strategy, we introduced three new SKUs with advanced innovation, a PEP dispenser, our H3O unit with enhancements that includes single serve K-Cup brewing technology, and our electric pump that provides portable and convenient water dispensing. These SKUs accounted for approximately 5% of our total sell-through. As it relates to innovation and sell-through, we will be launching another round of innovation this year, along with several modifications to our dispenser lineup. With our marketing support these annual launches drive a conversation and engagement starter across our ever-growing social presence. Additionally, we do this to bring newness to our lineup and support our retail relationships, where we continue to have the majority market share.

Let's move on to our second strategy of connectivity. As you know our connectivity strategy has been a strong driver of our exchange business and helped to accelerate an already strong growth rate. With that in mind, we have much progress to share. To start, I'm excited with the success of the instant redeemable coupons or IRCs, promotion for free water in all WalMart stores that carry dispensers. We have seen an increased redemption level that has taken the connectivity success we found in Black Friday of 17th and made it in everyday program. Consumers more than ever are leaving with Primo Water when they make their dispenser purchase. The connectivity leverage continue for consumers, after opening the dispenser box to reveal additional coupons inside, that help them learn more about our Exchange and Refill programs.

The IRC promotion of Walmart has increased their already healthy growth rate and we are now working with other retailers that sell dispensers, Exchange and Refill to implement similar promotions. In addition, we have also moved this connection strategy online with improved messaging and couponing. Lastly, keep in mind, we have a very investable and long-term consumer. The IRC and inbox couponing strategy are driving a new level of connectivity and new water households.

Moving on from our first two strategies we have several updates to share, as we continually focus on our third strategy, increased same-store sales and our water businesses. As noted, we continue to emphasize driving same-store sales, while we do continue to work with retailers both current and new when expanding our location footprint. With such a small percentage of retail traffic buying our products, we believe significant growth is possible in our current locations, which doesn't require much incremental capital. With that in mind, we continue to see retailer contraction while it would also analyze ROI at existing locations and remove underperforming assets.

Keep in mind, however, we have continued to grow right through that contraction and as it has been with Walmart, strong comps are what drive retailer excitement about expansion. With that said, let's dive into Refill. We have made significant progress on the downtime issue that we uncovered (ph) in Q3 and walk you through in detail during our last call. As a quick summary, after rerouting machine service based on volume, which resulted in a significant reduction reduction in operating cost.

We uncovered a latent machine downtime issue, which negatively affected volumes in Q2 and Q3 and to a lesser extent Q4. With that in mind, I'd like to share several details. As we have explained, we are implementing credit card readers that include telemetry, that bring a two fold benefit. First, it gives us near immediate notification of machine issues. And second, it gives consumer several new electronic payment methods. We believe these benefits will help us grow the business beyond anything in the past.

With that overview in mind, I'm happy to report that not only did we exceed our target of 6,000 readers installed by the end of Q4. As of today we have installed 11,224 readers and are on schedule to hit our total location installation target by the end of June. We continue to expect to see the full benefit of this technology in the second half of the year, as the rollout continues through Q2. That said, the visibility we are getting from credit card readers is already helping us to reduce downtime and recapture volume. The system we've built around this error alert process allows us to close issues much faster, anywhere from a few hours to a few days. In many cases that is 5 to 10 days faster than before and sometimes as much as 15 days based on the new routing model.

Two important pieces of context, comparison to Q3 and then pricing. In Q4, while we still had a volume reduction, its shrank to 11% compared to the 15% of the previous two quarters, which we believe is a signal that our plan is on track. Second, it's very important to consider this volume in context of the price increase implemented in the second quarter. If you recall from our pricing tests we experience the volume declines while the revenue increase was accretive. As we have rolled out the price increase, we continue to expect volume declines of anywhere between mid and high single digits, just as we saw in testing. Given that expectation the Q4 volume decline of 11% is just off, with the baseline would have been with pricing, giving us confidence that our downtime reduction formula and efforts are working and the revenue accretion from pricing is within our GAAP grasp. As it relates to our downtime reduction plan, the credit card technologies also helping us understand the core reasons for downtime, which we are using to make proactive supply chain changes. The installation of credit card readers also gives the consumer a new electronic payment methods which also attracts new consumers who would not have otherwise used Refill due to the cash only option. This does not only includes credit cards, but mobile payment apps, such as Apple Pay and Samsung Pay.

In our testing, we did see these e-payment options drive low single digit lift. In addition, we continue to see a healthy transition from cash to e-payment. For the initial credit card installations, we see e-payments reaching approximately 20% total transactions. Given the cost of handling cash, we do believe this transition will drive cost efficiencies long-term. Lastly, we have launched several other tests to help us reduce downtime and improve the consumer experience.

We are testing programs, such as using texting as a communication vehicle with consumers and shifting to more on-demand or dynamic service routing model. Based on algorithms, we can now build using the new detailed information we are getting from telemetry.

Sticking with Refill, but moving from supply chain to our brand, we expect to begin the brand transition in the second quarter, which will bring the Primo brand to all Refill locations over the next two years. We have labeled this project, the Ultimate Machine, as we will incorporate all of the positive results of our testing, branding, credit card readers, video screens, texting and signage. We believe this move back with a stronger supply chain will drive growth.

Moving from branding, I'd like to update you on pricing. While I briefly touched on our outdoor pricing earlier, during the quarter we also rolled out a slight price increase across our indoor machines at Walmart. This price increase along with some of our marketing efforts is driving low to mid-single digit revenue comp increases. While this indoor business is a small percentage of our overall Refill business, it is a positive sign that we can and will grow Refill through pricing and other marketing initiatives.

In addition to the indoor pricing, we have started regional price optimization testing in our outdoor locations. As we previously discussed, in many cases, our existing outdoor coin market have a broad spectrum of prices. Our initial outdoor price increase included a single move of nickel. It did not include rationalizing market or regional pricing. We believe that the effectiveness of the initial price increase could be somewhat diluted in some markets as we still offer a variety of price points and allow consumers to cross-shop. We believe there may be upside with consistent pricing and we'll provide updates in future quarters.

Moving from retail to same-store unit growth and Exchange, we are making significant progress in growing Exchange. The refinancing in mid-2018 with the new credit facility provided flexibility in interest savings to allow us to accelerate our branding and marketing unit growth drivers in the second half of 2018 and you can see the results. We're continuing these investments on an accelerated time frame throughout 2019. We are excited and the results simply speak for themselves.

Heading into 2018, we knew add it -- we knew we had a successful Black Friday program executed in 2017. And then new water homes created during that promotion, started growing same-store unit sales in Q1 to 9.5%. The new signage in our IRC strategy at Walmart helped increased comps further to 9.7% in Q2, 10.4% in Q3, and then we closed the year with an amazing 13.3% lift in Q4. To be clear that is four consecutive quarters of an increased growth rate on top of the business that hasn't been below 6% for 27 quarters.

A few notes on the strategy behind the results. First, we continue to invest in our CD joint signage rollout. Having completed the Walmart program at the end of 2018, we are well under way, bringing this in-store marketing package to all of our Exchange retail locations, which we expect to complete by the end of 2019. Not only do we continue to see growth related to the signage, it will bring ubiquity and messaging to our Exchange business for the first time. In addition to in-store signage progress, our couponing strategy is having a significant impact on the business, by increasing the connection of dispenser sales to our water.

The combination of these marketing initiatives continue to pay the way for rapid same-store unit growth expansions. Keep in mind, this comp inflection is mainly due to our efforts at Walmart as they are leaning into the category in a big way. However, other retailers are catching on and we're expanding these programs. 2018 was transformative and a culmination of harnessing of three key strategies.

Stepping back and looking at all of our initiatives, it's important to note the additive effect that they have. While we do test all of our programs in isolation, we do see the complementary effect. Two examples, we tested CD separately from IRC and both showed positive list and returns. We are just beginning to see the additive effect of the two at Walmart. Secondly, as it relates to pricing and marketing at Refill. We analyzed and tested the indoor price increase at Walmart separately from our video tests. While we see small single-digit revenue accretion due to pricing alone, which comes with small single-digit volume declines, we see both of volume and revenue accretion in the machines that have both pricing and video. We continue to believe that the combination of improving operations, well tested marketing and pricing will deliver good results in our business, specifically in Refill.

Lastly, we launched our new website, just last week, using significant consumer research, to bring forward a new look and feel, navigation and e-commerce experience. We believe this will help tell our story and attract new consumers at a faster rate. With that update on the key initiatives across our strategies, we are very excited about our business. Along with our investment in lowering the average sales price of dispensers, these core water initiatives should help propel our same-store unit growth in 2019.

As a reminder, the base units in our business are significantly higher than just last year in 2018. But we believe we can continue this growth rate. We believe these activities, not only -- will not only grow our business but make Primo even more attractive to both our current and new retail partners and drive future location growth. In summary, our consumers are very loyal and investable. We have a strong growth businesses and dispensers in Exchange. And we are well on our way to driving growth in the Refill business. That operational and marketing focus combined with the increasing industry tailwinds, gives us a lot of confidence and excitement about our business and we believe we are well positioned to accelerate our growth.

Always fueling our focus is our purpose of inspiring healthier lives through better water. I remain confident in our ability to drive value for consumers, employees, retailers and shareholders.

With that, I will turn the call over to David to cover our financial results.

David Mills -- Chief Financial Officer

Thanks, Matt and good afternoon everyone. I'll start with a review of our financial results and then discuss our outlook for 2019, before turning the call back over to Matt for closing remarks. First-off, to help investors understand our operating results, we do provide adjusted EBITDA and adjusted net income which are non-GAAP financial measures. A reconciliation of each is included in our earnings release issued this afternoon and available on our website.

Turning to our results, we accomplished a lot in the fourth quarter as our team successfully executed several initiatives as Matt outlined. On the top line, sales for the fourth quarter grew 3.8% to $70.9 million driven by growth in both Dispensers and Exchange. Dispenser sales for the quarter were below our expectations, but still up over 20% to $12.1 million. Dispenser sales were negatively impacted by the tariffs, that resulted in higher retail prices, thus slowing consumer demand or sell-through. The slowdown in sell-through in addition to retailers managing year-end inventory levels reduced orders in the last month of the quarter more than we expected.

However, we did receive a one-year exemption from the tariffs in December and have recently seen retail prices come back down to pre-tariff levels or lower. Despite the increase in retail pricing, we continue to see strong consumer demand, primarily the result of the IRC program at Walmart, and our e-commerce growth, which drove dispenser sell-thru to 158,000 units in the quarter.

Refill sales for the quarter were down 2.3% to $40.5 million, primarily the result of lower Refill volumes. As Matt mentioned, we have made a lot of progress on the rollout of credit card technology, that we believe will continue to improve the downtime issue. While it is early and we have many locations remaining to install, in the fourth quarter, we have seen some volume return. Overall, volumes were down 10.8%, a sequential improvement from the volume declines of approximately 15%, that we experienced in the second and third quarters. Exchange segment sales for the quarter increased 8.9% to $18.3 million. In Exchange, we continue to see the positive impact of the in-store promotional efforts, specifically the IRC or pre-water program and the improved in-store signage. The US Exchange same-store sales again accelerated in the fourth quarter to 13.3%, capping up a year in which we exceeded each previous quarters same store unit sales.

Turning to gross margins, overall for the quarter, gross margin was 28% compared to 28.7%. As we look at the segments, dispenser gross margin for the quarter was 13.9% compared to 10.9%, primarily due to the impact of the tariff exemption that was retroactive back to the end of June. Excluding the tariff impact, gross margin would have been in the mid-single digits which is more indicative of the level we are targeting in 2019, as we proactively worked with retailers to drive down retail pricing.

Gross margin for the quarter in Refill was 31.1% compared to 31.9%. The change in gross margins is primarily due to the incremental operating costs, we are incurring related to the downtime issue as we discussed last quarter. Exchange gross margin for the quarter was 30.4% compared to 31.4%. This change in gross margin was primarily related to the investment we're making in the IRC program that was started in the third quarter of 2018 which we believe is driving growth in new households using Primo Water.

Next, SG&A costs for the quarter increased to $9.1 million from $8 million. The increase is primarily due to marketing and promotional costs, certain employee-related costs, as well as bad debt expense related to the Sears bankruptcy, all of which is offset somewhat by a decrease in non-cash stock-based compensation. For the quarter as a percent of sales, SG&A excluding non-cash stock-based compensation was 11.4% compared to 10%, while marketing and promotional investments will fluctuate from quarter to quarter, we believe we can grow the business while continuing to leverage overall SG&A spend going forward in the 9% to 11% range, which we have done in the past.

Moving down the income statement, interest expense for the quarter was $2.5 million compared to $5.1 million. On a GAAP basis for the quarter, net income was $1.7 million or $0.04 per share compared to $3 million or $0.09 per share. The fourth quarter of 2017 included a $4 million tax benefit as a result of the Tax Reform Act. On a comparable basis, adjusted net income increased sixfold to $3.1 million or $0.07 per share compared to 500,000 or $0.01 per share. For the fourth quarter adjusted EBITDA was $11.8 million compared to $12.9 million.

Turning to the balance sheet, we ended the year with $7.3 million in cash. Inventories increased to $10 million from $6.2 million in order to support the accelerating growth in our e-commerce dispenser business. Total debt decreased to $190.1 million from $273.3 million, as a result of the debt refinancing completed in June of 2018. Our leverage ratio at the end of the year was approximately 3.4 times, which is down from approximately 5 times at the end of 2017.

Looking at the statement of cash flows for the full year, our cash flow from operations increased over 85% to $32.7 million compared to $17.6 million. Capital expenditures increased to $23.2 million from $20.4 million as we accelerated the rollout of credit card readers and new in-store Exchange signage. Free cash flow, which is operating cash flow less CapEx, increased substantially to $9.5 million from negative free cash flow of $2.8 million.

Turning to our outlook for 2019. For the full year, we expect net sales to be in the range of $315 million to $325 million. We expect to continue to see strong growth in Dispensers and Exchange and expect Refill to begin growing in the second half of the year, as a result of the operational improvements and the beginning of the rebranding. For the full year, we expect adjusted EBITDA to be in the range of $60 million to $63 million. Keep in mind for comparability, as we noted last quarter, we expect to sell the ice business in the near term. And on an annualized basis, that business contributed around $8 million in sales and $1 million in adjusted EBITDA.

Turning to CapEx, we have a number of marketing initiatives that we are rolling out in 2019 as Matt outlined. Given these rollouts, we expect CapEx to be in the range of $22 million to $26 million. As it relates to interest expense, the refinancing in new credit facility, put in place, provided a weighted average interest rate at the end of 2018, that improved over 300 basis points from 2017, even with the 100 basis point increase in LIBOR rates during the year. In 2019, we expect total interest expense to be approximately $10 million.

Moving to the first quarter, we expect net sales in the range of $67.8 million to $70.8 million. A few notes to provide some context. First, as a reminder, in the first quarter of 2018, dispenser sales benefited from retailer Black Friday replenishment as well as the Memorial Day promotion orders in 2018. And we do not expect to achieve the same selling levels in 2019. In addition, as we've discussed, we are seeing positive signs in Refill and believe the full impact of the credit card readers will be seen in the second half of the year.

Turning to adjusted EBITDA. We expect to be in the range of $9 million to $10 million, primarily the result of continued investment in Refill, dispenser margins and the IRC promotion. The incremental operational Refill costs are expected to phase out during the second quarter.

With that, I will turn the call over to Matt for closing remarks.

Matt Sheehan -- President & Chief Executive Officer

Thanks, David. 2018 was an important year for the business and our team for a host of reasons. First, we learned a lot, which I strongly believe is already making us stronger. We will continue to challenge ourselves, set stretched targets and move this business forward. I'm not only proud of how the team has responded to the Q3 issue, I strongly believe we are better for having gone through it. We maintain a long-term investment view to our business and we have always come through challenges better on the other side.

I very much believe our retail business will be stronger than ever by the second half of the year. Aside from that, as I look back upon 2018, we refinanced our debt, producing significant interest savings. Taken that savings and leaned in on growth drivers in the business. We posted good growth numbers on Dispensers and Exchange and we have moved several key initiatives forward. All-in we are excited to increase growth investments and drive even stronger results, while we continue to improve our operating leverage.

Our strategy has been intentional for years, create great products and gain distribution. Then turn to marketing, with over 45,000 points of distribution, we have convenient scale to leverage our marketing spend and communicate to consumers. We are excited that our investment in marketing has laid the foundation for long-term and sustainable growth. I'd like to thank our team, our retailers and our partners for their continued loyalty and support of our purpose.

With that, I'd like to open the line for questions, operator?

Questions and Answers:

Operator

Thank you, sir. (Operator Instructions) And our first question will come from the line of Jon Andersen with William Blair. Your line is now open.

Jon Andersen -- William Blair -- Analyst

Hey, good morning, everybody -- good afternoon, I should say, everybody.

Matt Sheehan -- President & Chief Executive Officer

Hi, John.

David Mills -- Chief Financial Officer

Hi, Jon.

Jon Andersen -- William Blair -- Analyst

I wanted to first ask about, to the Dispenser business. You mentioned unit sales were impacted by tariff pricing in the fourth quarter. And I think you expect a bit of an impact to carry over into the first quarter? How are you thinking about unit sales of dispensers and sell-thru on a full year basis in 2019? Given the, I guess, kind of the pricing investments and marketing investments you're making?

Matt Sheehan -- President & Chief Executive Officer

Yeah, great question, Jon. As I mentioned on the call, I mentioned earlier, Q1 is a tough comp just from what we experienced in 2018. We see dispensers growing in low-single digit to -- I'm sorry high single digits to low double digits, focused more around second quarter and third quarter, that's what we see timing coming in for sell-in?

Jon Andersen -- William Blair -- Analyst

Okay. And the impact of the retroactive tariff exemption did that help by about a $1 million in the quarter, is that my understanding and this kind of a one-time thing, where going -- kind of a catch-up adjustment that will not be carry forward in 2019?

David Mills -- Chief Financial Officer

Yeah, you're spot on, Jon, that's correct. It was around that amount and it's a catch-up from all the tariff we paid from the end of June through the end of the year.

Jon Andersen -- William Blair -- Analyst

Okay. So the expectation is that margins in that business will be kind of more in this mid-single digit range that we've seen in the past quarter two and that's an investment you're willing to make at this point for the incremental household penetration, is that kind of the right way to think about it?

Matt Sheehan -- President & Chief Executive Officer

Yeah, Jon, this is Matt. It's very purposeful so as we talk to retailers and we understand the impact to our testing and promotions that you've seen average sale price of dispensaries is a key driver for us. So we're going to do our part to get as tight as we can on those margins. It doesn't bring a lot of EBITDA to the entire business anyway, what really drives our business for the frankly short certainly long-term is household penetration and then connectivity. So, price matters here, we're doing our part. And as we talked about earlier, we see retailers more and more leaning in whether it's promotional or on an everyday basis. So we want that snowball just continue to start, so ASP comes down . So it is, it is very proactive on our point to get to, call it mid single-digit margins in dispensers.

Jon Andersen -- William Blair -- Analyst

Okay. On the Refill business, it seems like you've almost to your point earlier gotten back to kind of level -- well, the volume (inaudible) you've seen has been internally consistent with your testing of the higher pricing. As you look forward, why the second half and so we kind of return to revenue growth, is it just you need to complete the balance of the rollout? Because it seems like you have the majority of the machines upgraded and probably more of the network volume upgrade that is -- you probably gone after the higher volume machines first.

Matt Sheehan -- President & Chief Executive Officer

Yes, I mean, we still have -- so I'll take this in a couple of directions, when we still have roughly 7,000 credit card readers to install at this point, so that's still a healthy chunk. That's number one. Two is, we try to be conservative on things like that and we're -- so that's two. And three we still have a little ways to go to get that to a sea level. As we said last quarter, we think this is going to be a two to three quarter clawback. I think the second, what we saw in Q4 was the right progress and it's pretty much it's getting closer back to where it would have been with pricing alone, but not all the way there. So we think across Q1 and Q2 or climb through that and then we're really going to see is the benefit in Q3 and Q4.

David Mills -- Chief Financial Officer

And the other thing I would add, Jon, is the initial rollout of the initial locations where we're obviously a little bit higher volume locations and they were on a higher frequency than the locations that we're rolling out in Q1 and into Q2. So those will have a -- we believe a large -- a little bit larger impact in the initial wins based on (multiple speakers)

Jon Andersen -- William Blair -- Analyst

Okay. Okay. What do you think, based on what you've seen so far, I mean when it's all said and done, do you have kind of a thought around the average downtime. I think you've said pre the start of the rollout, it was something like 7 to 10 days on average, is what you had kind of determined. Where do you think you end up after all that said and done with the telemertry upgrade? And then also kind of second part to that question, do you think you'll see some meaningful incremental volume, as they're giving the consumer kind of more payment options on these machines?

Matt Sheehan -- President & Chief Executive Officer

Yeah, Jon, I'll take that one. So just let me backup again, pre rerouting what we saw after all of our analysis was a machine going out for the times of year 7 to 10 days that are by power (ph), we call that 20 days, call it a month. We spike to that not purposefully -- we spike that in Q2 and Q3 to really be 12 to 15 days when they do go down. What we have had seen is our downtime when issues happen where we do have credit cards. We brought that down to two to four days, sometimes hours.

So if we have a tech that's closed and we get paying from a credit card machine. Some of our guys and girls have said, hey, I was there in four hours. And so what we predicted last time is absolutely come in true as it relates to the locations where we do have credit card readers. If you take all that and you do the math, we still contend that in time what you start to see in the second half of the year is, we could be seeing 4% revenue growth of just by -- just by the credit card readers being installed in a faster uptime. So that's one, I think we still contend that numbers we shared before in that 4% upside is still there.

Well, on your second one, our testing did show that the existence of Apple Pay, Samsung and just credit card readers alone for the use of credit cards, would give us a small lift but we say that small single-digits, we do expect that to come through over time.

Jon Andersen -- William Blair -- Analyst

Okay. Let's see. Two quick ones. Sorry, I'm taking a lot of time here, but on the ice business, what, what are your expectations there for timing of the sale and what do you plan to do with the cash flow?

David Mills -- Chief Financial Officer

Yeah, it should be in the near term, we've talked about it sometimes, but in the next, I would say 30, 60 days, it's working, process working as we expected. Cash flow just go into working capital as we continued to accelerate out the marketing initiatives.

Jon Andersen -- William Blair -- Analyst

Okay and last one for me on e-commerce. It was, I think you mentioned 20% of the sell-through this quarter which is significant, right. We're getting pretty material. Do you expect that to continue to rise and what are the margin implications when you sell through e-commerce? Are you doing most of that through third party e-commerce retailers? Are you selling that direct to consumer from your website, what's the kind of the balance there and the margin implications? Thanks.

Matt Sheehan -- President & Chief Executive Officer

Yeah, it's a mix across both our own site which is what all you hear what is direct and then through Amazon and others. So that's really a mix of retailers that is already in some of our margin projections, Jon. So as part of that mid single-digit margin sort of forecast that we have -- some of those can be pretty tight on margins depends on SKUs as a mix, and a question there. But again, we think e-commerce is a really great way to get a bulky item to a home and when once the customer has that item, they're going to be looking for water. So we think it's a really great fit not only for e-commerce partners but also frankly for a physical retail partners, we have stores because that water is most likely going to come up, few consumers picking up at stores.

So, yeah, we will definitely lean into e-commerce. From a percentage perspective, it could be close to that, if not more, as we really lean in although our brick and mortar clients continue to lean into retail as well and we continue to get more shelf space.

Jon Andersen -- William Blair -- Analyst

Great. Thanks a lot.

Matt Sheehan -- President & Chief Executive Officer

Thank you.

David Mills -- Chief Financial Officer

Thanks, Jon.

Operator

Thank you. Our next question will come from the line of Mike Petusky with Barrington Research. Your line is now open.

Michael Petusky -- Barrington Research -- Analyst

Hi guys. I want to dig, I want to try to dig in or understand the guidance in particular in terms of the revenue and particularly the upper end. So if the ice business was $8 million and let's say it ends up being sort of incremental hit of $6 million through the year, $302 million then goes to $296 million. And so if you take the $296 million and then essentially say, hey, we have a chance to get to the upper end of guidance, you're essentially saying that the remainder of the business overall growth close to 10%, let's call 9% but close to 10%. It sounds like you're saying that the Dispenser business could grow 10%, but really the implication of the upper end of the guidance is the rest of the business could grow to close to that rate as well. And I guess what I'd like to ask is that essentially the guidance that you're giving or is there some M&A that's assumed in there? Or can you just speak to the upper end of the revenue guidance how that happens? Thanks.

David Mills -- Chief Financial Officer

Sure. Yeah, and Mike as we mentioned earlier and dispenser sales as you know can always be up and down and change things dramatically, but we see dispensers, high single-digits could get into the double-digits again like this year did. Exchange, we continue to see the strength of the IRC program, the in-store signage that we're rolling out and so we see the second half of the year in Exchange being really strong as well even comping Q3 IRCs, Q4 IRC. So we see strong growth there and as we mentioned Refill, Q1, Q2 will be similar challenges, but improving over time, but we see, as Matt mentioned earlier, we see growth starting to happen in Refill. I mean it's a much bigger business, if we can get that business moving in the low single digits maybe a little bit more, in the second half of the year it really drives the top line and the top end of that.

Michael Petusky -- Barrington Research -- Analyst

Okay, well David, I mean are you pushing back at all on my math, so essentially it feels like you're essentially saying the entire business sort of grows 10% to get to the top -- to the higher end of the range and you're saying that's a distinct possibility if I'm understanding this, there is no M&A assumed here?

Matt Sheehan -- President & Chief Executive Officer

No, I mean we are always looking at the smaller kind of Refill deals, but nothing material. And we've not factored anything material into the deal, into our guidance.

Michael Petusky -- Barrington Research -- Analyst

Is there anything wrong with my math or am I...

David Mills -- Chief Financial Officer

No you're seeing it -- you're seeing it clearly, it is what we're seeing is more back-half loaded without a doubt and then we're seeing a lot more positives as we roll out this Exchange in stores, the signage Exchange, the lows and then other retailers and then the positive signs we've seen that in Walmart alone. We see as we roll that out throughout the year we'll see continuing growth in Exchange. And then Refill we still believe second half of the year could be strong in Refill, as we get all the credit card regions in place and the operational improvements you will start to hit.

Matt Sheehan -- President & Chief Executive Officer

And Mike, we've not taken Refill at 10% just to be really break it now, but we think that, when that base really gets move in and given the momentum we have in Dispensers and Exchange and that will bring -- that will bring it out. But I think your math is right, and we're really excited about our business.

Michael Petusky -- Barrington Research -- Analyst

So Matt, if you're not pegging Refill at 10%, which doesn't surprise me. You are pegging the other two businesses at or even above 10% -- for the upper end (multiple speakers).

Matt Sheehan -- President & Chief Executive Officer

That's correct, thanks.

Michael Petusky -- Barrington Research -- Analyst

Okay.

Matt Sheehan -- President & Chief Executive Officer

That's correct.

David Mills -- Chief Financial Officer

(multiple speakers) Your math is right.

Michael Petusky -- Barrington Research -- Analyst

Okay, all right. And then just a quick question, so as you guys are well aware some of the southeast had some storms in Q4, I didn't hear if you called it out, but did weather impact in your view, revenue at all in Q4? Or do you not feel like that really played much of a role?

Matt Sheehan -- President & Chief Executive Officer

Yeah, we didn't see it play much of a role, some of it was spotty weather, but we didn't see any major impact negative or positive in the quarter, Mike.

Michael Petusky -- Barrington Research -- Analyst

Okay, all right. And then I guess just following on to the earlier question the 20% sell through online, I didn't, if you said where you thought that could go, I didn't catch it, I mean could that be a authority (ph) to your business in the next year or two?

Matt Sheehan -- President & Chief Executive Officer

Yeah, it could -- want to be a little careful on guiding not only because of brick and mortar is leading in hard to. So we think -- we don't think it's going to drop down far below 20% and a lot of this is new business and hence what we are seeing the overall growth, but we think it's probably 20%, maybe a little bit higher than that as brick and mortar grows even more.

Michael Petusky -- Barrington Research -- Analyst

Okay, very good. Thanks guys.

Matt Sheehan -- President & Chief Executive Officer

Thanks, Mike.

David Mills -- Chief Financial Officer

Thank you.

Operator

Thank you. And our next question will come from the line of George Kelly with Imperial Capital. Your line is now open.

George Kelly -- Imperial Capital -- Analyst

Hi guys, thanks for taking my questions. First to go back to the previous question, just to make sure that I have all the numbers right. So the ice business did $8 million in 2018 and you're baking in that selling in the next 60 days as part of your 2019 guidance?

David Mills -- Chief Financial Officer

Yeah, that's correct, it's around $8 million and we expect to sell that business in the next 60 days or so.

George Kelly -- Imperial Capital -- Analyst

Okay, OK, great. Second question about just CapEx expectations for 2019, I may have missed it on the call, but what is that? What is your full-year expectation and what are the biggest pieces that you're spending?

David Mills -- Chief Financial Officer

Expectations are between $22 million and $26 million, and the biggest drivers are continued roll out of credit card technology in the retail side of the business, but also beginning the additional rollout of Exchange signage, CD joined signage that Matt mentioned and then the last part in the second half of the year we'll start the rebranding of all the Glacier locations.

George Kelly -- Imperial Capital -- Analyst

Okay, OK. And then to follow up on the last part of rebranding. Can you update us and Matt, I know, toward the end of your prepared remarks, you were tucking, I think about some of the advertising initiatives and some more marketing related tested, that have been going on, what is the plan this year? Have you been pleased with more media advertising test that you've made? And is it -- can you start spending more before the brands are unified?

Matt Sheehan -- President & Chief Executive Officer

Great question. We do believe that unification of the brand is really important as we've done some of our marketing initiatives. We're not out there talking about two brands and so we don't believe Glacier has got frankly any benefit from any of our marketing, whether it's our website or social media, or any of the more localized word-of-mouth or advertising. So we do believe that's important, it doesn't mean we're going to stop our testing until that's all unified, but we do believe that one brand, across everything is certainly more important.

We've -- like all testing to the first part of your question, we've seen some positives across all of our testing and we know that you're going to have a abating rate that is not 1,000 and then we're OK with that, we do small tests when they work we lean into a couple of examples, IRCs, we tested that two years ago, we lean (ph) on Black Friday when that worked we rolled it. CD joints was a part of a three different marketing kit that we tested for a good six months. We saw the results CD was a clear winner we rolled in, albeit there is others, video screens, things like that. So as we look forward, we do believe unification is important, and we have tested a lot and we'll be rolling out a good look in attractive, I'll call it magnetic, look and feel across the entire country, and in the end of second quarter really Q3 and Q4.

George Kelly -- Imperial Capital -- Analyst

Okay, great. And then last question for me, it sounds like the attach rate is significantly higher when there is promotional materials included with the dispenser sale. How widely can you give any more detail about what -- I'm not asking you to quantify, I guess it's probably kind of hard to give too much, but what is the sort of different lifetime value of that customer and how -- what percentage of dispensers are sold with that coupon attached at the initial sale?

Matt Sheehan -- President & Chief Executive Officer

Yeah, I'll give sort of overall strategy, Dave can jump in with some numbers. From our perspective, well Dave you want to jump in on the numbers first?

David Mills -- Chief Financial Officer

Sure. Yeah, as I mean as we think about this investment in IRCs, George, we have a very investable consumer, all our data shows that on average a family buys 35 -- 5 gallon bottles a year. If you do some math that's around, if you do use our gross margin of 30% and about a $5 wholesale also value, at our product. Over the lifetime you could receive the $200 to $300 investable value there and so giving...

Matt Sheehan -- President & Chief Executive Officer

That's gross margin, I mean that's a $1,000 customer value to us right, that's $250 of gross margin.

David Mills -- Chief Financial Officer

Correct, yeah, so very investable consumers that's the way we look at it. We look at it out of five to six year period to just to be clear.

Matt Sheehan -- President & Chief Executive Officer

Yeah, and then on that I think the numbers are going to start and then on a percentage we're not sharing those exactly, what we can tell you though is, as we've rolled out a higher connection between the dispensers and the water through things like everyday IRCs, is not only are the IRC's driving connection, but that's actually driving more of a connection to the secondary coupon that's in the box. The combination of the two that means we are effectively funding two bottles for every dispenser customer and that is we really important that anywhere from, call it a $20 to $25 investment for a customer it's going to get us $250. I mean that's a decision, we'll make often. And that's what we're doing. So the percentage, the yield, if you will, is improving, we're going to continue to lean into it, because of the value of that consumer.

David Mills -- Chief Financial Officer

Yeah, and the last thing I would say, George, what gives us a lot more confidence is if you just look at the sequential improvement in Exchange same-store sales. Black Friday was in Q4 2017, then every quarter in 2018 we improved same-store sales, -- as far those water customers coming back in the store quarter-after-quarter, and layering on as we brought the IRC on in Q3 and Q4.

George Kelly -- Imperial Capital -- Analyst

Okay, great. Thank you.

Operator

Thank you. And our next question will come from line of Mike Grondahl with Northland Securities. Your line is now open.

Michael Grondahl -- Northland Securities -- Analyst

Yeah, thanks guys. Hey to rebrand the Glacier location, how much is that costing and what do you think the payback is or how long is the payback?

David Mills -- Chief Financial Officer

So the rebranding per machine is around $500 to $600. On each location, it could vary a little bit based on the number of times and the age of the machine. But overall, we think that will take between starting in the second half of this year into 2020. So CapEx, it will be additive this year, but a little bit more in 2020.

Matt Sheehan -- President & Chief Executive Officer

And Mike, I don't look at our IRR hurdles any different or rebranding than we do everywhere else, we've always said, we have a -- we look at 30% IRR. This is another marketing program that we believe will reach that hurdle, hence why we made the decision. I think there is some even upside that we haven't modeled into that decision. As you think about a unified brand and so when you do have marketing messages that they can really wrap everything and I think that's probably could potentially more accretive than we've said. But we, we use that 30% IRR hurdle on everything we do. So we don't see any difference here.

David Mills -- Chief Financial Officer

And the average cost probably be -- ended being a little bit less than I told you, probably in the 250 to 300 range per machine, depending on the types and with credit card reader it would be in the 500.

Michael Grondahl -- Northland Securities -- Analyst

I mean, if you had to add that too. Got it, OK.

Matt Sheehan -- President & Chief Executive Officer

That's great.

Michael Petusky -- Barrington Research -- Analyst

(multiple speakers) And then in terms of closing retailer shutting down stores, are you still seeing that headwind? How would you describe that?

Matt Sheehan -- President & Chief Executive Officer

Yeah, we're seeing it at, certainly the Kmarts of the world, in Office Depot, we're seeing it in a lot of small independent grocers across the country as they try to compete. Some of them compete really well, some of them, some of them don't. So we do expect more of that to continue as the big guys continue to lean in more and more on their marketing strategies.

Michael Grondahl -- Northland Securities -- Analyst

And maybe just a follow-up to that. Would you see is that 10% of your book, 15% of your book where you kind of have or fighting that headwind, how material is it?

Matt Sheehan -- President & Chief Executive Officer

I would say that it's not that material. Overall, as you can see, when you, when you look at the year, year-over-year, locations are down maybe around 500 in Refill alone, maybe around 500 locations, but you can see the business is still volumes still around 11% which is an improvement over Q2, Q3. On Exchange, you could see locations are fairly flat, but dollars are continuing to grow. So the marketing efforts are really driving the efforts there. And that mentioned on the call, as we start to see those comps retailers are going to start to lean in more and it'll make expanding the footprint even easier in the future.

Michael Grondahl -- Northland Securities -- Analyst

Got it. Okay, thanks guys.

Matt Sheehan -- President & Chief Executive Officer

Yeah. Thanks, Mike.

Operator

Thank you. Our next question will come from line of Amit Sharma with BMO Capital Markets. Your line is now open.

Amit Sharma -- BMO Capital Markets -- Analyst

Hi, good afternoon, everyone.

Matt Sheehan -- President & Chief Executive Officer

Hi, Amit.

David Mills -- Chief Financial Officer

Good afternoon, Amit.

Amit Sharma -- BMO Capital Markets -- Analyst

Matt, can you provide us a little bit of details or update on Mexico. What's happening, how far are we? And then also just talk about like overall, how do we think about the opportunity for you in Mexico, and any simple timeframe to get there?

Matt Sheehan -- President & Chief Executive Officer

Sure. We are, we're not putting any projections on Mexico, it's really early in it. But we are very excited about it. Keep in mind, just as a refresher, the way we did this was, it's a very low investment model from our perspective, very low risk with a good partner. And so it's very early innings, I mean I think we announced that just over two months ago at this point and so it's really early innings. We'll keep you up to speed, but nothing of major significance, hence as we really get a partner up to speed, learning the business and start to grow it will keep you up the speed. We're not going to give any projections on that either, but keep in mind, it's going to be low distraction from our perspective. We've got a good partner and it's really a royalty model. So I don't expect it to you to -- to hit our economics at all. The exciting part will be when they get it to some scale, we've already locked in some buyout rates which will be sort of material down the road.

David Mills -- Chief Financial Officer

Yeah, we don't expect it to be material in 2019 at all, Amit.

Amit Sharma -- BMO Capital Markets -- Analyst

Yeah, of course. Is there, is there any competitor that actually exists or are you going to create the category there essentially?

Matt Sheehan -- President & Chief Executive Officer

They are very, very small competitive base in Mexico. And so I do believe just giving the per capita consumption of bottled water, Amit, that is really -- highest in the world. We think Refill is a great place, it's got the right demographics, the right income base, really high per capita consumption. All of that, we believe it's a really great, I guess mix for Refill.

Amit Sharma -- BMO Capital Markets -- Analyst

And that's what I'm trying to get a little bit more sort of understanding of not this year '19 and perhaps even 2020s too early. But what is the size of the opportunity in Mexico and I'll encourage you to maybe provide a little bit more color on it as we get closer to it?

Matt Sheehan -- President & Chief Executive Officer

Yeah, I think that's up -- that's our plans. So as we get closer, we'll get folks up to speed on Mexico. It's a big water opportunity and for sure we'll get that as we get closer.

Amit Sharma -- BMO Capital Markets -- Analyst

Absolutely. And then couple more from me -- from the IRC and its impact on Exchange and it's very clear that you're pretty happy with the ROI on that investment and the trends are accelerating. Should we expect that to also lean into the Refill side of the business or is that IRC related investment is generally going to only be on the Exchange side? Over time do you expect that to show up on Refill volumes as well?

Matt Sheehan -- President & Chief Executive Officer

We do, we do. So, first keep in mind IRC is only at Walmart and really focused in on Exchange, see that we are seeing it, but we absolutely believe that a lot of dispenser, consumers or Refill consumers we have all that data. And so we're going to lean into that more and more, not beyond Walmart. And so what you're seeing on the impact, most exciting thing we see is the impact on the comps, everybody is growing in Exchange, but the real impact has been at Walmart. And so we've only done that program with one retailer and when -- if and when can we do that across multiple retailers, we could be really excited about an Exchange and certainly at Refill.

Amit Sharma -- BMO Capital Markets -- Analyst

And what's holding you back from launching it with other retailers? Is it the logistics offered? Or the retailers not ready let say hold up? Such that being positive.

Matt Sheehan -- President & Chief Executive Officer

Yeah, its, the great positive, some retailers coupon differently than others. So that's Walmart as IRC, others will do free water. So we will look and feel, slightly different, but we haven't really good conversations with others. In fact we're in test with other retailers as we speak. And so, no, I don't think there is a delay, just it was new for us, we, as we focus, let's get it right. It's working well, now let's take that and run with it as fast as we can. So I don't, I don't think there's a lot of hold back, just a little bit of linear approach in our perspective, which get it right, and then we look forward.

Amit Sharma -- BMO Capital Markets -- Analyst

And then from a next year's outlook perspective, right, and both on sales and EBITDA and we have the discussion about what that number implies from a growth perspective. What I'm more interested in, if you look beyond 2019, like 2019 obviously, the first half from where Refill perspective is a big headwind for you, right? As you lap what happened last year and Refill it happens to be a fairly large part of your business, right, (inaudible). So as you look to 2020 that headwind will be gone. You will have more contribution from these growth initiatives that you're putting in place including investment behind dispenser and interconnectivity. It's double-digit top line, the right metric for you going forward? I'm not asking you to like blast (ph) forever, but I mean all these initiatives should give us more comfort that top line for you could actually be very high single-digit, low double digit, when...

Matt Sheehan -- President & Chief Executive Officer

Yeah, when we look at 100% (ph). And again what, we are confident on our business, we're trying to be very real about the Refill sort of pull back, right, our portfolio if you will. But yeah, we think all the trends in the business in the marketplace from water or from health and wellness, and that's really going to continue to drive the overall bottled water space, and we think we can capture our more than fair share of that. And then all the programs we've tested and we're rolling out, but still early innings. We think 10% top line is doable on top of a bigger base every year, and so we are being very frank with you and everybody about what we need to do to get there, but so strong business with good growth potential and we see no reason we can't get there.

Amit Sharma -- BMO Capital Markets -- Analyst

And (multiple speakers), sorry.

Matt Sheehan -- President & Chief Executive Officer

I just got to say, as you think about 2019 and how the second half is going to look, that gives us a good indication of how we believe 2020 and forward, we'll look as well, I mean the Refill businesses is operating as efficiently as possible.

Amit Sharma -- BMO Capital Markets -- Analyst

That's a good point. And then David, just for you from this type of growth, what kind of operating leverage or SG&A, I mean obviously you are investing and behind increasing activities. So there is expectation that at least marketing part of it will continue to increase but there should be a pretty significant operating leverage from this type of top line growth as well, right?

Matt Sheehan -- President & Chief Executive Officer

Exactly right. You're spot-on again. So yeah, marketing free cash flow and the marketing leverage will get from that and we'll continue to invest in marketing this year, and you'll see some growth. We'll be doubling like we did in 2018, but we'll continue to invest, where we see the opportunity. But we do see that leverage coming down in the SG&A side and still be in that 9 to 11 depending on where we are in a marketing investment each quarter. But long-term that will gradually come down as well as the top line start to accelerate a little bit ahead of where our investments are going.

So we see that continuing to drive down toward the 9 and maybe even a little bit lower when we get further out.

David Mills -- Chief Financial Officer

And, Amit, I just add, that as we have done over the couple of years when we find something that works, we'll be open about it, and we'll lean in. And then we'll continue to do that, but if you just stop growing at some pretty leverageable model.

Amit Sharma -- BMO Capital Markets -- Analyst

Yeah. Got it. And that's all I have. Thank you so much.

Matt Sheehan -- President & Chief Executive Officer

Thanks Amit. Bryan, are you still there?

Operator

Mark, we may proceed with your question sir.

Mark Argento -- Lakestreet Capital Markets -- Analyst

Yeah, this is a Mark Argento is my line open?

Matt Sheehan -- President & Chief Executive Officer

Yeah. Hi Mark, yeah, we're hearing you now.

Mark Argento -- Lakestreet Capital Markets -- Analyst

Okay. All right. Hopefully...

Matt Sheehan -- President & Chief Executive Officer

How are you doing?

Mark Argento -- Lakestreet Capital Markets -- Analyst

Last but not least so hopeful here -- hey just quickly, I guess, maybe we could just go back up 5,000 feet here and I kind of maybe you could help us think through a little bit of kind of the key takeaways. The delta kind from expectations relative to kind of what you've kind of seen so far. Now with the Glacier acquisition, it seems to me like, maybe it's been a little bit more challenging from a volume perspective, maybe pricing has been a little more fickle than you thought, maybe you could just kind of sum it up for us a little bit how you're thinking about the business in our relative from acquisition till now. Thanks.

Matt Sheehan -- President & Chief Executive Officer

And Mark, I'll start Dave can jump in. I have a couple of thoughts here, one is, just keep in mind, how well we did integrate operationally, I've always said that you've got to make sure the operational integration goes well. We pushed the envelope a bit, but the routing we've been very open about how we probably could have pace that, probably little more aggressive on that. But if think about the cost which cover the business in '17 and even in '18 through routing, I feel really good about our ability to find those synergies. If we had paced the rerouting and pricing differently and we didn't have that Q3 issue, we would be in really, really great shape.

So I think long-term culturally it's a good fit, I think if -- when you think about the ability to promote dispensers, and water and now outside water, I feel really good about that long-term thesis on the business. And again, we took a lot of cost out of the operating model. I think we've shown in the past, our ability to come close to 35% margins in that business and we're going to get the volume back. So, we'll call it a hiccup, but in general, I'm not any less, in fact I'm probably more positive on our ability to build value out of the combination.

Mark Argento -- Lakestreet Capital Markets -- Analyst

Great. Are there any stores or any locations that you think, you might need to close or continue to get optimize at this point?

Matt Sheehan -- President & Chief Executive Officer

Yes, we've been doing -- I mean if you look at our locations we will always continue to look at unit center economics. And when you have underperforming assets, we will pull them out and try to redeploy them, it's been some I've done in my career, we'll continue to do it here that likely a better home for those units elsewhere. So you'll continue to see us even if it brings down our net location number, which we've done consistently before Glacier and certainly in the post that we will pull out non-performing assets, redeploy them and really put our efforts against new locations good -- new good location of retailers and making sure our current family of locations are producing as much cash flows they can.

Mark Argento -- Lakestreet Capital Markets -- Analyst

Great. Thanks for the thoughts.

Matt Sheehan -- President & Chief Executive Officer

Thanks, Mark.

David Mills -- Chief Financial Officer

Thanks, Mark.

Operator

Thank you. And I'm showing no further questions at this time. So, now it is my pleasure to hand the conference back over to Matt Sheehan, President and Chief Executive Officer, for any closing comments or remarks.

Matt Sheehan -- President & Chief Executive Officer

Thank you for your participation on today's call and interest in Primo Water. Have a great night.

Operator

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program and we may all disconnect. Everybody have a wonderful day.

Duration: 72 minutes

Call participants:

Katie Turner -- Investor Relations

Matt Sheehan -- President & Chief Executive Officer

David Mills -- Chief Financial Officer

Jon Andersen -- William Blair -- Analyst

Michael Petusky -- Barrington Research -- Analyst

George Kelly -- Imperial Capital -- Analyst

Michael Grondahl -- Northland Securities -- Analyst

Amit Sharma -- BMO Capital Markets -- Analyst

Mark Argento -- Lakestreet Capital Markets -- Analyst

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