Primo Water (PRMW) Q3 2019 Earnings Call Transcript

Primo Water (PRMW)
Q3 2019 Earnings Call
Nov 05, 2019, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Primo Water's third-quarter 2019 conference call. [Operator Instructions]. I'd now like to hand the conference over to your speakers today Madeleine Kettle, investor relations. Thank you.

Please go ahead, madam.

Madeleine Kettle -- Investor Relations

Good afternoon, and welcome to Primo Water's third-quarter 2019 conference call. On the call with me today are Susan Cates, lead independent director; Billy Prim, executive chairman and interim president, and CEO; and David Mills, chief financial officer. By now, everyone should have access to the release that went out this afternoon at approximately 4:05 p.m., Eastern Time. If you've not received today's press release, it is available on the investor relations section 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. I will now to turn the call over to Susan Cates.

Susan Cates -- Lead Independent Director

Thank you, Madeleine, and good afternoon, everyone, and thank you for joining us on today's call. I've served as an independent director Primo Water for five and a half years, and earlier this year was appointed to lead independent director. As a board, we are responsible for representing all of our shareholders and appointing and holding accountable the executive leadership team of Primo Water. With this quarter's results, which we'll discuss more fully in a moment, and the reduced outlook for the balance of the year, the board determined that it was time to replace to CEO.

And so as we announced today, Matt Sheehan is no longer with the company. The board has appointed Billy Prim to serve as interim CEO until our search for a new CEO is complete. Billy was Primo Water's founder, its prior CEO, and has been serving as executive chairman for the past two and a half years. Billy understands the business, its goals and people, and will enable a smooth transition.

The board deeply appreciates Billy's willingness to take on this assignment several months ago as part of our succession planning process. The board engaged a global executive search firm to develop a CEO profile, and began looking at candidates to lead the company. We do not have a definitive time-frame for identifying and hiring a new CEO, but the process is well under way and we're committed to moving swiftly or deliberately. Billy is not a candidate for the permanent job, and upon the appointment of a new CEO, the board anticipates that Billy will give up his executive functions and become the non-executive chairman of the board.

Over the past two years, the board has taken a number of steps to get feedback from our shareholders and enhance Primo Water's corporate governance. As part of our ongoing process, we are working with a leading board recruiting firm to evaluate the composition of our board and help us identify potential director candidate. Our process has included outreach to many of our large shareholders. And on behalf of the board, we want to thank those of you that have provided us with thoughts on our board composition, as well as specific candidates.

We appreciate your input and welcome additional feedback from shareholders. With that I'd like to turn the call over to Billy Prim.

Billy Prim -- Executive Chairman and Interim President and Chief, Executive Officer

Thank you, Susan. Good afternoon, everyone. I will provide some high-level remarks about the state of the business and then ask David Mills, our CFO to cover the specifics of the quarter and our outlook. I started this business 15 years ago with the vision to provide purified drinking water to families in an environmentally and socially responsible way.

In 2010, we were approximately a $45 million business that was basically break-even at the adjusted EBITDA line. And five years ago in 2014, we had over a $100 million in net sales and approximately $13 million in adjusted EBITDA. Today, we believe we are on our way to generating well north of 300 million in net sales and more than 50 million in adjusted EBITDA in 2019. Our clean environmentally responsible drinking water can be found in more than 45,000 locations, including inside and outside of some of the largest retailers in the country.

Every day families drink our water, and don't have to rely upon the aging municipal water systems and declining tap water quality. Our business and our values are aligned with two major consumer trends, health and wellness and sustainability. And we are convinced, we have a bright future. Although our recent bottom line performance has fallen short of our expectations.

We are proud of the strong and consistent sales growth. We have demonstrated and believe we can quickly return to producing the cash flow in earnings, we all expect. The exchange and the spreads for businesses continue to perform extremely well. Dispenser sales increased 53% over the prior year.

And exchange sales were up nearly 13% on the back of same-store sales unit growth of more than 18%. And refill, the indoor locations have shown growth and our outdoor locations, which have been challenging are showing signs of a turnaround. From where I sit, the biggest issue we have had is the speed of the turnaround of the retail business, as well as certain higher than expected costs that have impacted our gross margins and adjusted EBITDA. For many years we were known for our predictable sales and adjusted EBITDA growth, but we have struggled in recent quarters.

We plan to return to being a company with the consistency we have shown in the past. We will do a better job of controlling elements in our cost structure and properly got our investors on our sales and earnings trajectory. I know we will identify new leader for the company who shares these goals. Between now and then, my goal is to direct our very capable people to control our cost, grow our locations and continue the growth trajectory in sales while we improve our gross margin and adjusted EBITDA.

The results from this past quarter are instructive and should give us all optimism. Net sales were strong in our exchange business for example, this quarter was the fifth consecutive quarter of double-digit same-store sales unit growth, and we have had 30 straight quarters of same-store sales unit growth of greater than 6%. Our dispenser sales grew significantly setting up more households as future water customers. In addition, our Walmart indoor refill sales grew by over 7% for the quarter.

So the indications of the future continue growth are in place. We need to continue to drive improvements in the refill business, the location count is down 7% over the past 12 months. We need to grow the number of locations and improve our service. To help us with location growth, we are excited to have Harrison Dean as our new vice president of sales.

After an extensive national search, we are pleased to have Harrison on our team with its more than 20 years of retail sales leadership experience. He joined us from Inmar and Rug Doctor where he demonstrated the ability to grow brands through retail location expansion. Harrison also brings a strong understanding of running a kiosk business using generally underutilized space at a retailer, including working with the current retailers on the sales generating programs that ensure retailer retention while aggressively expanding locations. Primo has every hallmark of a great business.

We have a large and unique market presence. And we are helping consumers meet important personal and family goals of providing purified drinking water in an environmentally friendly way. Consumer backlash against poor tap water quality and disposable single serve plastic bottles continued to gain national headlines. We remain well positioned to benefit from the macro trends and believe we are well positioned for growth.

Sales trends are positive and we now have an acute focus on better managing the controllable aspects of our business, such that we can return to a more predictable margins, profits, and cash flow business. With that, I'd like to turn the call over to David Mills, our CFO.

David Mills -- Chief Financial Officer

Thank you, Billy. Today, I will review our financial results for the quarter and then discuss our outlook for the remainder of the year. Finally, I will turn the call back over to Billy for closing remarks. To start, we utilized non-GAAP financial measures to assist investors in better understanding our operating results.

A reconciliation of each is included in our press release which is available on our website. Turning to our results for the third quarter, sales were 87 million at the high end of our expectations, driven by an acceleration in our dispenser and exchange segments. Sales adjusted to exclude the Ice assets sold in June of 2019 increased 10.5%. As I will describe in a moment, we did not achieve our guidance for adjusted EBITDA.

Dispenser sales for the quarter were 18.3 million, an increase of 53.1% over the prior year and significantly ahead of our expectations. We continue to experience a high level of retailer demand, which is driven primarily by record sell through as retailers replenish inventories, as well as the timing of shipments related to retailers preparing for the fourth-quarter promotions. Exchange sales increased 12.7% to a record 24.2 million, well ahead of our expectations, driven primarily by US exchange same-store unit growth of 18.3%. The same-store unit growth was a result of continued in-store marketing initiatives, including the IRC program and the new display signage at Walmart and other retailers, such as Lowe's Home Improvement.

The new signage Lowe is driving impressive growth in locations that have been installed for years. We anticipate adding the new signage to over a 1,000 additional locations over the next three quarters. Retail sales for the quarter were 44.5 million and below our expectations. The strong monthly positive trends in refill that had accelerated late in the second quarter, unexpectedly slowed in the third quarter before rebounding late in the period missing the peak seasonal months of July and August.

Despite this, adjusted sales from refills, which excludes the ice business were down 1.8% compared to the prior year. This is a significant sequential improvement over Q2 and Q1, which were down 4.5% and 7% respectively. Most of the change in refill sales is the result of the lower location count. At quarter end, we had 7% fewer refill locations than a year ago.

That said, our adjusted sales per location have increased as productivity of our footprint is higher today than it was in the past. In the quarter, the average adjusted sales per location improved 4.7% compared to the prior year. This is a strong improvement over Q2 and Q1, which were down 0.3% and 4.5% respectively. Not surprisingly, we are focused on increasing the number of locations to provide additional scale to the business.

Overall, during the quarter, we added approximately 1,000 net locations, led by the exchange installations at Albertsons. More importantly in refill, we were able to significantly reduce the impact of retail churn and closures as our net locations were flat from last quarter as a result of our sales team's efforts and the completion of a small regional acquisition. Excluding the acquisition locations declined by approximately 100 in the quarter, which is a vast improvement compared to the decline of approximately 900 locations in the first half of the year, of which over one-third were due to store closures. The refill acquisition as a regional business with over 135 highly productive locations in the Southwest.

And brings a stand-alone kiosk refill model, as well as new national customer accounts. Our outdoor machines are generally located on a sidewalk of a retailer. However, these stand-alone kiosks are located in the parking lot of retailer, shopping center, or gas station. Stand-alone kiosks tend to produce more sales and volumes in our traditional outdoor refill locations.

Our gross margin for the quarter was 25.6% compared to 28.7% in the prior year. The decrease was partly due to a higher mix of dispenser sales, which represented 21% of total sales, compared to 14.6% in the prior year. Dispenser gross margin for the quarter decreased to 3.5% from 5.2% as a result of changes in product and customer mix. Exchange gross margin was 29.8% compared to 31.1% in the prior year.

Gross margin in the current quarter was primarily impacted by the continued acceleration of IRC redemptions, as well as customer mix. While the IRC program is impacting margins in the near term, we believe that it will continue to drive top line growth in the future. We feel gross margin for the quarter decreased to 32.4% from 33.4% mainly due to the lower than expected sales in the quarter, as well as the incremental costs associated with addressing the machine downtime. SG&A, adjusted to exclude non-cash stock-based compensation decreased to 7 million from 7.3 million or as a percent of sales decreased 8.1% compared to 9% in the prior year.

Adjusted EBITDA was 15.4 million compared to 16.2 million. The decrease was primarily due to the lower volumes and margins in refill and continued acceleration in IRC redemptions resulting in lower exchange margins. As I mentioned, the trends in the refill business are positive. However, they are behind our original estimated timing.

This lag had a significant negative implication on the volumes and margins compared to our expectations. Looking at the statement of cash flows for the first nine months of the year. Our cash flow provided by operations was 23.1 million compared to 23.8 million in 2018. Capital expenditures increased to $20.9 million from 15.6 million, primarily the result of the rollout of around 1,000 new exchange locations, the installation of credit card readers in the first half of the year and the new in store exchange signage and display.

We continue to expect capital expenditures for the full-year to be in the range of 24 to 26 million. In addition, we used approximately 6.4 million in cash for the acquisition mentioned earlier. Our leverage ratio at the end of the quarter was 3.9 times and we continue to expect it to decrease going forward. Turning to our outlook, we are adjusting our outlook to address the results and trends of the third quarter and the continued investments in promotional activities that we believe are important to future growth.

With these factors in mind, we now expect sales for the full year of 312 to 316 million and adjusted EBITDA of 50 to 52 million. Looking at the fourth quarter, we expect sales to be 75.7 million to 79.7 million, and adjusted EBITDA to be 11.5 to 13.5 million. With that, I will turn the call over to Billy for closing remarks.

Billy Prim -- Executive Chairman and Interim President and Chief, Executive Officer

Thanks, David. Going forward, the team at Primo Water remains confident and focused on improving sales at existing locations and location expansion. We believe our same-store sales and location focus will continue to drive the long-term growth and dispensers exchange and our refill and soon sustainable growth in outdoor refill. I would like to thank the team for their dedication and significant efforts.

We remain focused on driving growth and value for consumers, retailers, employees and shareholders. With that, I'd like to open up the line for questions, Operator?

Questions & Answers:

Operator

[Operator Instructions]. Our first question comes from the line of Jon Andersen from William Blair. Your question please.

Jon Andersen -- William Blair and Company -- Analyst

Good afternoon, everybody. Billy, question for you to start. As the board goes through the process of looking for a new CEO, I'm wondering if you think or board thinks it makes sense to also pursue or look into strategic alternatives for the business. Should this be a dual track kind of process?

Billy Prim -- Executive Chairman and Interim President and Chief, Executive Officer

Yeah. Thank you, Jon. Good to talk to you again. The board is focused on really finding the right person to lead this company in the direction that we're headed.

We believe that the trajectory of sales is great in almost every aspect of our business. There are some I think in the outdoor refill, but we've got to get our cost and unexpected surprises under control from a cost standpoint, then our business will be stabilized and we think the shareholders will be rewarded for it in that way.

Jon Andersen -- William Blair and Company -- Analyst

OK. So you mentioned earlier that 2019 should be a year where you deliver more than $300 million in sales and more than 50 million in EBITDA, which applies an upper teen kind of EBITDA margin. If you look forward and think about the business, it's kind of 400 million in revenue. I don't know that's a couple of years from now, a few year from now, but if you think about the business, maybe a 350, $400 million in revenue.

What kind of EBITDA margins in aggregate do you think would kind of would meet your kind of criteria of cost containment operating business?

David Mills -- Chief Financial Officer

Yeah, it's a good question and it's important, we've said for some time. This should be a 20% EBITDA margin business. So if we grow sales that could get even north of 20. But when you're talking about two years out, we should be in a 20% EBITDA margin business and actually could be today if it weren't for some of the surprises we've gotten in exchange in dispenser.

I guess the declines in refill over the last year, I think it really impacted EBITDA margins. And we continue to believe EBITDA margins, Jon, could be the 20 to 22% long-term, but through some of the controlling the cost a little better improving margins in an exchange and then refill and then refill as it continues to improve and turnaround, we could see a gradual improvement over time getting to that 20% margin by the time we get to the numbers you're talking about.

Jon Andersen -- William Blair and Company -- Analyst

OK. Can I ask just a couple more on the exchange business? The same-store comps or the unit comps have been terrific as you pointed out and they're getting stronger. But the gross margin continues to go kind of the other direction. And I'm trying to kind of square the two and having a hard time doing that.

I understand that the IRCs are part of that. At what point do you kind of revisit the IRC and say, you know is this, are we really getting the kind of a return and investments that we're looking for their understand driving top line, but it doesn't seem to be delivering a margin standpoint in that part of the business. How should we think about that?

Billy Prim -- Executive Chairman and Interim President and Chief, Executive Officer

Yeah. You're right Jon. It's Billy again. We believe it's done a good job of driving top line.

It's done a good job of driving margin for retailers, but it hasn't driven the margins that Primo should be expecting. And you will see that change going into 2020, you probably can't see much of it this quarter because commitments have been made in certain places, but we believe we can do this just is effectively, but a lot more efficiently that will grow that gross margin by the point or two that we've lost over the last year or two.

Jon Andersen -- William Blair and Company -- Analyst

OK. And last one last one for me. The refill business. I wasn't sure if I heard, could you tell us what the volume performance was in refill, I guess that's obviously the Ice sale and then if you were thinking about when that business could inflect into kind of neutral or positive volume growth.

What's the new thinking on timing there? Thank you.

David Mills -- Chief Financial Officer

Sure, I'll take first part. On the total volume, we're down just around 3% on a volume aspect when you factor out Ice and look at revenues being down 1.8% on a comparable basis. That's a dramatic improvement over the last couple of quarters. We believe the trends we saw late in the third quarter, if those can continue into the fourth quarter, you could start to see that kind of flatten out and then getting into 2020 will be flat on a comparable basis and then possibly growing somewhat.

And as we add locations in which is really the biggest factor over a year ago, that will add on top of that.

Jon Andersen -- William Blair and Company -- Analyst

OK, thanks a lot everybody. Good luck.

David Mills -- Chief Financial Officer

Thanks, Jon.

Operator

Thank you. Our next question comes from the line that Amit Sharma from BMO Capital. Your question please.

Amit Sharma -- BMO Capital Markets -- Analyst

Hi, good afternoon, everyone.

Billy Prim -- Executive Chairman and Interim President and Chief, Executive Officer

Hey, Amit. Good afternoon.

Amit Sharma -- BMO Capital Markets -- Analyst

Billy and Susan, can we go back to the CEO transition? Can you talk about that a little bit more? Like what really precipitated that change in direction? You did talk about succession planning thing going on. Was it just normal succession planning, or were you in fact thinking of a CEO transition for some time now?

Susan Cates -- Lead Independent Director

Yes. This is Susan. We were -- in terms of the transition, it's really, as we said about the company, not performing to expectations that the board had for our operating performance. And as Bill has referenced, some of the controllable aspects of that, we had not made a decision to make a change until this quarter and the performance in this quarter.

But certainly, from a planning standpoint, working with the search firm to define a profile and began looking for candidates as part of our succession planning process is something else that we had done.

Amit Sharma -- BMO Capital Markets -- Analyst

And on that Susan, as you think about shifting the gears over to performance aspect of it, what's an ideal candidate look like from Primo's perspective?

Susan Cates -- Lead Independent Director

I'll share a little bit of thought and Bill if you want to add anything certainly feel free to do so. The board has worked with our search firm to define a profile, we're not sharing the specifications around that at this point, but certainly welcome input from many of our shareholders around that as well.

Amit Sharma -- BMO Capital Markets -- Analyst

And then, ideally, how long will this process take?

Susan Cates -- Lead Independent Director

We're well under way. We don't have a specific timeline, but we are are moving quickly to identify and narrow down candidates.

Amit Sharma -- BMO Capital Markets -- Analyst

Got it. And then about the business a couple of clarifications. David, the acquisition did it contribute in the quarter? If it did, how much was it?

David Mills -- Chief Financial Officer

We closed that acquisition probably late in the quarter, late last third of the quarter. So it's overall immaterial to the quarter, it was positive from a revenue obviously in August, as well as a margin standpoint but just marginally at the end of the quarter.

Amit Sharma -- BMO Capital Markets -- Analyst

And what is it expected to contribute for the full-year on both EBITDA and sales?

David Mills -- Chief Financial Officer

It will be -- it's a smaller -- like I said small regional tuck-in, it will be smaller, but it will be positive to the overall business.

Amit Sharma -- BMO Capital Markets -- Analyst

Got it. And then Billy, as we think about some of the controllable that you talked about that we may not have been delivering, what are the top couple of things that come to mind that could be easily reverse as you look through the next quarter or quarter after that?

Billy Prim -- Executive Chairman and Interim President and Chief, Executive Officer

Well, I think the controllables are in each one of the business segments. But as you run marketing programs in exchange and dispensers, we need to understand the cost going in and be able to forecast those, so that we're not surprising ourselves and investors at the end of the quarter would be some of the things in refill, it is really just locations. We're down 1.8% in revenue, but we're down 7% in locations. There needs to be a real focus on retaining and expanding the number of locations.

Amit Sharma -- BMO Capital Markets -- Analyst

And Billy, on that surprising or getting surprised for the cost, is that the dollar cost that is surprising or the lack of lift from that that is surprising?

David Mills -- Chief Financial Officer

Yeah, I'll take a little bit of that. I mean, I think from -- as we looked at the IRC for example, we look at historical averages of redemption rates in these types of programs. Frankly, our program has far outperformed any of the data we had originally looked at in view this under and then that data from quarter to quarter has continued to accelerate their redemption rate that we've been seeing significantly even from Q2 to Q3. And I think as Billy talks about as we get toward the end of the year, we were planning for promotional into 2020 we need to relook at that program with our retailers and make sure it's cost effective for us, just as it is for the retailer.

And that's I think the biggest part of the change over the last quarter or last several quarters.

Amit Sharma -- BMO Capital Markets -- Analyst

Just to be clear and I'm trying to make sure that I understand that. What does that mean that you will ask the retailer to share in the cost of the IRC, like how else could it be better for you?

Billy Prim -- Executive Chairman and Interim President and Chief, Executive Officer

I think they see it just one component costs and surprise is that we've had there, I mean without getting too far down in the weeks. But when we have an expected charge backs in costs from retailers because the programs weren't executed the way we expected them to be when we put programs in place.

Amit Sharma -- BMO Capital Markets -- Analyst

Got it. Thank you so much. I'll get back in the queue. Thank you.

David Mills -- Chief Financial Officer

Thank you, Amit.

Operator

Thank you. Our next question comes from the line of Mike Petusky from Barrington Research, your question please.

Mike Petusky -- Barrington Research -- Analyst

Hi, guys. So just sort of stepping back to the Glacier deal, one of the things that you guys thought it could be a really big opportunity, particularly over the two, three, four years out, which we're now in that time-frame was this idea of cross-selling and building locations through cross-selling. And I guess, first, do you still think that opportunity is as big as you thought it was when the deal was first closed a few years ago? And second, what do you, if it is, what do you do to sort of get that going?

Billy Prim -- Executive Chairman and Interim President and Chief, Executive Officer

Yeah, Mike. Good to see. Yes, we do believe it's a big opportunity. It is there.

Frankly, we haven't had the right people in the right places to execute it. I think Harrison Dean. As we announced today is the start of that. I think there are several other open positions that you'll see us filling.

And then thirdly, it's putting the right programs in their hands to go out and sell those things. So we do believe it's a nice opportunity.

David Mills -- Chief Financial Officer

Yeah, I would just add, Mike, we had Albertsons is probably the top cross-selling opportunity. When we bought Glacier, we took a little while to get there, but we were successful in winning that business. And then as we talked last quarter, we thought it would take a couple of quarters to roll it out, but through the team's efforts and Albertsons giving us a go-ahead for all locations we were able to roll that entire business out of just under 1,000 locations in a matter of weeks at the end of the quarter. So I think that's just a good example of what we can do when we get the go-ahead from a retailer.

Mike Petusky -- Barrington Research -- Analyst

Yeah, that's great. So on outdoor refill obviously you cited July and August softness. I guess, one, can you speak to what you, what if anything you learned of essentially why that happened and then could Q4 or Q1 when's the positive comp coming in that business? Thanks.

David Mills -- Chief Financial Officer

Good question, Mike. Yeah. So unfortunately, the trends we've seen in second quarter, it really just flattened out and stopped in the first part of the third quarter when we missed kind of the peak months in this business from a seasonality standpoint. What we saw in September and early indications in October is that we're now even with the location counts that Billy mentioned being down, we're seeing positive signs in the business overall.

We believe via going forward that if we can continue those trends through the operational improvements location stabilization like we saw last quarter and then improvements with Harrison on board, you should maybe by the first quarter of next year you'll start to see marginal improvements are comps on a comp basis.

Mike Petusky -- Barrington Research -- Analyst

OK. But you're not calling that for Q4?

Billy Prim -- Executive Chairman and Interim President and Chief, Executive Officer

No, it's Billy here. We're trying to be, you know, to avoid surprise, taking the conservative view a little bit on Q4 to make sure that we got positive at the end of the quarter. We want to make sure we see that throughout the rest of this quarter.

Mike Petusky -- Barrington Research -- Analyst

OK. I just want to try to clarify and maybe made this clear and I just didn't track with it. Are you guys pulling back on the IRC program in 2020 or are you discontinue it or can you just clarify exactly what you're saying about what change you're going to make there?

David Mills -- Chief Financial Officer

Yeah, Mike, I'll take that. The IRC program has been very successful and we do see continuing that what we want to be able to do is to be able to work with retailers to forecast exactly what that cost is going to be and how we're going to share it. So now, we will continue it and I think we'll have a good graph to give you of what 2020 is going to look like for that program.

Mike Petusky -- Barrington Research -- Analyst

OK, great. And just last one, David, I didn't catch how much revenue was associated with that little acquisition you guys did in Q3?

David Mills -- Chief Financial Officer

In Q3, it was immaterial. We haven't shared the number, it was small but--

Mike Petusky -- Barrington Research -- Analyst

But I mean annualized that business, how much revenue?

David Mills -- Chief Financial Officer

It's I would say it's under 5 million.

Mike Petusky -- Barrington Research -- Analyst

OK, all right.

David Mills -- Chief Financial Officer

On an annualized basis.

Mike Petusky -- Barrington Research -- Analyst

OK, perfect. Thanks guys.

Operator

Thank you. Our next question comes from the line of Kara Anderson from B Riley, FBR. Your question please.

Kara Anderson -- B. Riley FBR, Inc. -- Analyst

Hi, good afternoon.

Billy Prim -- Executive Chairman and Interim President and Chief, Executive Officer

Good afternoon, Kara.

Kara Anderson -- B. Riley FBR, Inc. -- Analyst

So, I guess I just kind of wanted to ask about the EBITDA outlook for the fourth quarter, it looks like you're really taken a bigger reduction on EBITDA in the 4Q then kind of the miss in the third quarter, and you've talked about some of the surprise costs, just hoping you can elaborate on what's driving that down in the fourth quarter?

David Mills -- Chief Financial Officer

I would say the most part, I mean, the biggest part is probably the refill trend. What we saw in Q3 which was significantly behind where we anticipated kind of running that into through Q4. The IRC cost that Billy mentioned in the redemption rates being exceedingly higher than we had originally forecasted and expected those costs as well. And then there is some other pieces here in their margins that's impacting margins in exchange, but I'd say those are the, I think, two largest pieces.

Kara Anderson -- B. Riley FBR, Inc. -- Analyst

And the dispenser revenue is pretty meaningful in the quarter. I know you talked about, kind of filling that before promotions in the fourth quarter. With some of that timing, did that surprise you, were you expecting some of that in the fourth quarter? And then the second part of the dispenser question is, how much did the Home Depot skews on add in the quarter?

David Mills -- Chief Financial Officer

There was some timing shift between Q4 Q2 based on the promotional schedules that we were seeing in Q4 that was under $1 million probably just about 600,000 or so. Majority of the surprise was just the growth in the orders related to the two promotions or the several promotions we're doing in the fourth quarter. The retailer orders were higher than we anticipated based on the sell-through in demand, we were seeing basically in Q2 and Q3. We've had two successive sequential record quarters of consumer demand and we're having to replenish that, at the same time where we're seeing higher levels of promotional activity or orders related to that promotional activity based on that.

Kara Anderson -- B. Riley FBR, Inc. -- Analyst

And the second part of my question was around on Home Depot. I think you added dispenser SKUs to Home Depot recently, just curious if any of that was tied to the addition of Home Depot.

David Mills -- Chief Financial Officer

No, I mean Home Depot we added the one SKU in the second quarter toward the end of the second quarter and those orders initially took place in the second quarter. This quarter would be just replenishment orders of that one SKU. So not material overall to the quarter when compared to the other businesses, the other retailers.

Kara Anderson -- B. Riley FBR, Inc. -- Analyst

OK. And then one last question for me. Did you break out how much Albertsons Companies locations added to the quarter?

David Mills -- Chief Financial Officer

We did not, but I can tell you exchange sales even without Albertsons would be over 10%. So we were 12.7% with Albertsons and we'd be probably around 10.7% without the Albertsons on a comparable basis.

Kara Anderson -- B. Riley FBR, Inc. -- Analyst

Got it. Thank you.

David Mills -- Chief Financial Officer

Thanks, Kara.

Billy Prim -- Executive Chairman and Interim President and Chief, Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Mike Grondahl from Northland Capital, your question please.

Unknown speaker

Hi. This is Michael on for Mike. Thanks for taking the question. Maybe first just another one on dispensers, anything new e-commerce kind of selling through Amazon, and the company store?

David Mills -- Chief Financial Officer

Nothing new from an e-commerce standpoint where we continue to focus and grow the Amazon in our own websites, but this quarter is probably a little bit less of the percent of the total. We are right around 15% of e-commerce sales compared to total dispenser sales. And that was just driven by the retailer orders to get supply in the stores for the fourth-quarter promotions.

Unknown speaker

Got it. And then maybe just one quick clarifying one that small tuck-in acquisition. Is that all exchange or is that a mix of --

David Mills -- Chief Financial Officer

It's 100% refill, it's a small regional refill player in the Southwest.

Unknown speaker

OK, thanks.

David Mills -- Chief Financial Officer

Thank you.

Operator

Thank you. And our next question is a follow-up from the line of Amit Sharma from BMO Capital. Your question please.

Amit Sharma -- BMO Capital Markets -- Analyst

Thank you so much for taking the follow-up. David, could you clarify a couple of things for us, the sales force ramp up. So as you think about location, and refill going forward and maybe try to be a little more aggressive with it. Can you talk about like, are you adding more sales as it already being put in place or how should we think about that as we go forward?

David Mills -- Chief Financial Officer

You're talking about the sales team, the sales group that Harrison's building out his team now?

Amit Sharma -- BMO Capital Markets -- Analyst

Yeah, exactly.

David Mills -- Chief Financial Officer

Yeah. We brought on several I think in the last two months. He may have maybe two to maybe three positions that remain open. We think those will be filled in the next couple of months.

Amit Sharma -- BMO Capital Markets -- Analyst

So, how many total are we adding?

David Mills -- Chief Financial Officer

Total will be around five or six. And when we say salespeople, these are more regional salespeople and there'll be throughout the Southwest and, some of the Northeast and throughout the country.

Billy Prim -- Executive Chairman and Interim President and Chief, Executive Officer

They will also be supplemented Amit with, we used brokers and other teams to help us reach some of the smaller independent players.

Amit Sharma -- BMO Capital Markets -- Analyst

Got it. And the downtime issue it says in the press release that was the reason for gross margin refill. I thought that was all sort of gone. Is it still lingering on?

David Mills -- Chief Financial Officer

Well, that the -- I think what we talked about was the margins in refill were impacted by two things. Obviously, lower volumes with the fixed-cost nature of the business, but also the incremental costs associated with implementing the technology and the other pieces to keep downtime in check and improved downtime is the technology and the downtime issue is, I would say in really good shape. Our average days down is less than two days now, so the team is doing a great job of getting to the equipment and getting it back up and running. But the costs to whether it's the credit card readers or other incremental cost to get people to the machines was higher than we anticipated.

So as those incremental cost to keep the downtime issue in check or improving.

Amit Sharma -- BMO Capital Markets -- Analyst

And that will remainn a headwind for at least next couple of quarters?

David Mills -- Chief Financial Officer

Those are some of the things that as we look at the cost structure as Billy talks about things that are, we haven't been good at maybe predicting or controlling. Those are some of the things we're looking at, is there a better way to do it and it's still ensure that we maintain the downtime at the appropriate levels or as best as possible. So yeah, I think over time we will see improvements in refill margins related to that, but also related to volumes coming back in locations as we bring some more of those also.

Amit Sharma -- BMO Capital Markets -- Analyst

Great. Billy, last one from me, but obviously the locations sales or sales per location is ramping up pretty nicely in the refill. Can you just remind us one more time, what's the right location universe in your mind and how much of that is still left, how do you look at your network?

Billy Prim -- Executive Chairman and Interim President and Chief, Executive Officer

Yeah, there is certainly a lot of opportunity in both exchange and refill. And as I've said many times before, it comes from Blue Rhino where it's important to be convenient to the masses. I think our businesses are very much the same. In Blue Rhino we had more than 50,000 locations.

We're now close -- nowhere close to 50,000 locations in exchange or refill. So we will put a heavy emphasis on growing our location count, but also making sure that we're putting these at the right locations that we're spending our capital at the right location, and I think we can do that.

Operator

Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to management for any further remarks.

Billy Prim -- Executive Chairman and Interim President and Chief, Executive Officer

I just want to thank everyone for your interest in Primo Water. And we look forward to speaking to you on the next call. Thank you.

Operator

[Operator signoff]

Duration: 47 minutes

Call participants:

Madeleine Kettle -- Investor Relations

Susan Cates -- Lead Independent Director

Billy Prim -- Executive Chairman and Interim President and Chief, Executive Officer

David Mills -- Chief Financial Officer

Jon Andersen -- William Blair and Company -- Analyst

Amit Sharma -- BMO Capital Markets -- Analyst

Mike Petusky -- Barrington Research -- Analyst

Kara Anderson -- B. Riley FBR, Inc. -- Analyst

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