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Cott Corp (NYSE:COT)
Q4 2019 Earnings Call
Feb 20, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Cott Corporation's Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. [Operator Instructions] This call will end no later than 11:00 a.m. Eastern Time. The call is being webcast live on Cott's website at www.cott.com and will be available for a playback there for two weeks. This conference call contains forward-looking statements, including statements concerning the company's future financial and operational performance. These statements should be considered in connection with cautionary statements and disclaimers contained in the safe harbor statements in this morning's earnings press release and the company's annual report on Form 10-K and quarterly reports on Form 10-Q and other filings with U.S. and Canadian securities regulators.

The company's actual performance could differ materially from these statements, and the company undertakes no duty to update these forward-looking statements, except as expressly required by applicable law. A reconciliation of any non-GAAP financial measures discussed during the call with the most comparable measures in accordance with GAAP is available in the company's fourth quarter and fiscal year 2019 earnings announcement released earlier this morning or on the Investor Relations section of the company's website at www.cott.com.

I'll now turn the call over to Jarrod Langhans, Cott's VP of Investor Relations.

Jarrod Langhans -- Vice President of Investor Relations and Corporate FP&A

Good morning, and thank you for joining our call. Today, I'm accompanied by Tom Harrington, our Chief Executive Officer; Jay Wells, our Chief Financial Officer; and Billy Prim, Executive Chairman and interim CEO of Primo Waters. As a part of this conference call, we have included a deck online at www.cott.com, that was designed to assist you throughout our discussion. With that said, Tom will start this morning's call with some thoughts on our company overall before turning the call over to Jay for a discussion of our fourth quarter and full year consolidated financial performance, the results of our Route Based Services segment, a few comments on the Primo results that were issued as part of an 8-K filing this morning and our 2020 expectations before handing the call back to Tom to comment before moving to Q&A.

With that, let me now turn the call over to Tom.

Thomas J. Harrington -- Chief Executive Officer

Thank you, Jarrod, and good morning, everyone. Thanks for your interest in our company and for joining our call this morning. I wanted to share how proud we are with the progress we've made in our transition to a pure-play water company that we believe better positions us for long-term growth. We entered 2020 with strong momentum by executing against our initiatives, including the customer experience, our Customer four Life mindset, developing new and enhanced channels of new customer additions, the rollout of our Pureflo IOT-enabled filtration cooler and overlapping highly synergistic tuck-in acquisitions. The combination of our progress against these initiatives and the strong momentum in our recent performance set the stage as we pursue our strategy to become a pure-play water solutions provider that consistently drives top line growth and improve margins while remaining committed to delivering long-term value for our shareholders.

And looking at 2019, I'm pleased to report that we delivered solid revenue growth of 6% when removing the impacts of FX, coffee commodity pricing and the divested Cott concentrate business. During the fourth quarter, we increased EBITDA to $85 million from $70 million, a 22% increase over prior year. For the full year, we delivered $153 million of adjusted free cash flow, which exceeded our commitment of the $150 million plus. Let me briefly elaborate on some of our key initiatives. Our investments in the customer experience are beginning to pay off, with retention rates increasing to 83.5%, and the average life of our customer base to 4.7 years in North America, resulting in a historically low cooler churn rate, where we executed a 220 basis point improvement compared to Q4 of the prior year. Our focus on delivering the hydration solutions our customers want, along with a great experience that is expected by our customers will enable us to further reduce churn. We are now focusing our investments on increasing both customer loyalty and revenue per customer by providing appropriate communications tools, which allow us to have real-time two-way communication. We implemented triggered communications that are sent to our customers based on their past purchasing behavior as well as more targeted direct marketing.

These activities were implemented in Q3 and are working well. We rolled out our new mobile app at the end of the year for our current customers, which includes the ability to review your invoice and future orders as well as a list of available products to choose from. Over the coming months, we will roll out additional updates as we continue to improve and refine our capabilities. These technology investments and improvements, increased ease of ordering for our customers help increase retention and provide valuable insights into future cross-selling opportunities. In addition to the efforts we are implementing on customer experience, we've added growing relevant products to our portfolio to further satisfy our customers' hydration needs, including our Mountain Valley brand, which grew its top line 20% on a pro forma basis in 2019. We remain focused on cross-selling case pack water, sparkling water and other products to our returnable 5-gallon customer, base, increasing our penetration rate of small pack case water and drove volume growth of over 10% for the year. Put simply, our goal is to give our customers what they want when they want it. Our acquisition of Primo Water will enhance our ability to deliver hydration solutions to a new group of thirsty consumers, expanding our reach and frequency. We continue to develop new and expanded channels to drive organic customer growth. As an update, the e-commerce platform, which enables consumers to order and reorder returnable 5-gallon water through an online retailer, continues to be tested in Georgia and Florida. We're making progress and look to expand this program into other markets in 2020.

We're also investing in our digital customer acquisition efforts, which are driving double-digit increases through this low-cost source of new additions. We're confident in our ability to generate additional HOD water revenue as a result of this multipronged approach to growth, and we will continue to invest to drive top line and bottom line growth throughout 2020. With respect to the higher growth and higher-margin category of water filtration, we began the rollout of our Pureflo IOT-enabled water filtration cooler. As a reminder, this patented solution will support our efforts in retaining and attracting water filtration customers across our footprint. Our proprietary filtration technology meaningfully extends the life of the water filter and requires far fewer service interactions, which, in addition to reducing our operating costs, complements our sustainable platform of products and services. As we expand our water filtration business, we believe that the Pureflo solution will enable future growth from an already predictable and dependable revenue stream and allow us to meet demand for our range of hydration solutions. We remain a top five player across our 21-country footprint in water filtration, and our strategy is to accelerate the growth in our filtration business through an expanded sales force and innovative products.

Finally, we strengthened our North American and European route density with a number of overlapping tuck-ins. And as many of you have read, we began publicly announcing these tuck-ins in order to keep our investors better informed of our good progress. In 2019, we improved our route density in Poland with an overlapping tuck-in that provided attractive synergies. We increased our density in the Northeast United States with a couple of tuck-ins. We executed another in Netherlands and added the leading HOD business in Hungary, which included some carbonation technology that will allow us to deliver carbonation within all water coolers in Europe at a much lower cost than we were previously able to offer. We will continue to execute our tuck-ins in North America and Europe to further strengthen our core HOD business and route density in 2020. These actions, in combination with our revenue growth, delivered operational leverage, resulting in a 50 basis point improvement in EBITDA margin compared to prior year in our Route Based Services segment, and larger than we had previously communicated. Switching to environmental, social and governance.

We're making progress in achieving the environmental sustainability goals we announced last year as part of our ESG program commitments. In North America, the certification of our spring water sources to meet the Alliance for Water Stewardship, AWS, standard is an integral part of our ESG program, and we've developed a time line to begin implementation of this program in 2020. Leading this initiative is Travis Thornton, Vice President, Water Resources. Travis most recently was Director Water Resources at DS Services and served in a variety of roles, including hydrologist for over 2019 years. In addition to his leadership with the AWS certification, Travis will be responsible for managing water resources across Cott's business units to do a sustainable yield and consistent quality across the company's operations. We're confident in achieving AWS certification for our spring sources by 2025. Our continual efforts will ensure that our spring sources are managed sustainably to meet water needs, not only for today but for decades to come. In addition, we're focused on attaining carbon-neutral status by 2022 in North America to add to our eight year carbon-neutral status in Europe. As part of this program, we're moving our fleet replacement on route trucks from diesel to propane and will replace 100 diesel trucks with propane-fueled vehicles in 2020, which will reduce fuel consumption by approximately 35% for these 100 assets and is a much more environmentally friendly energy source. Turning to capital deployment. In 2019, we divested the last component of our legacy soda and juice business in February with a $50 million sale of our concentrate business.

We continued our tuck-in acquisition strategy with acquisitions above the high end of our annual goal of $40 million to $60 million, and we returned $64 million to our shareholders through a combination of share buybacks and dividends. As part of our ongoing commitment to shareholder returns, in December, our Board of Directors approved a new 12 month share repurchase program of up to $50 million of our outstanding common shares, and we will execute against this program in 2020. As I look back on 2019, I'm proud of what our associates accomplished during my first year as CEO. We're excited about the future of our company and are well positioned to benefit from continuing growth, both organically and through tuck-in acquisitions across our platform. We will benefit from the divestiture of the S&D business and the addition of the organic growth that Primo Water Corporation will provide and expect to see our overall financial standing improve in terms of our top line growth potential, our EBITDA margin profile as well as our ability to generate free cash flow with our new pure-play water focus.

Moving to an update on our transition to a pure-play water solutions provider. We entered 2020 with strong momentum as we aggressively execute our transformation into a pure-play water solution provider. We remain focused on successfully completing the acquisition of Primo Water while also smoothly transitioning the S&D business to Westrock Coffee Company. We've begun preparing for the integration process of the two businesses and are excited not only to welcome the Primo team but to realize the full potential of the combined business. We're confident we will capture the previously identified $35 million in cost synergies through the integration of Primo and becoming a pure-play water company, deliver margin expansion and drive increased organic growth as a pure-play water solutions provider. Of course, we are focused on execution in our base business to ensure we deliver the top line growth and the margin growth we expect in this business. We're truly excited about the opportunity to provide sustainable hydration solutions to growing customer base and positioning the company for continued growth, while also ensuring we deliver long-term shareholder value. As an update to the Primo transaction, as things stand today, we would expect to close during the first week of March, at which time we will change our name to Primo Water Corporation and our ticker on both the New York Stock Exchange and the Toronto Stock Exchange will change to PRMW. Moving to our planned sale of S&D Coffee and Tea. This business had a very strong quarter and they are well positioned for a successful 2020 under new ownership. We're currently working toward the closing at the end of February.

I'll now turn the call over to Jay who will review more specifics on our performance. Jay?

Jay Wells -- Chief Financial Officer

Thank you, Tom, and good morning, everyone. Starting with the quarter, we continued to see good top line performance with consolidated revenue up 4%, excluding the impact of foreign exchange, the sale of Cott Beverages, LLC and the change in average cost of coffee. This performance was driven by customer, volume and pricing growth within HOD water and good price mix and extract growth within our Coffee, Tea and Extract Solutions segment. Operating income increased by $16 million, and adjusted EBITDA grew over $15 million or 22% to $85 million primarily driven by growth within our Route Based Services segment, inclusive of increased customers, volume, pricing and acquisitions. The good momentum we saw in the fourth quarter and throughout the year in our Route Based Services segment gives us confidence in delivering another strong year of performance in 2020. Turning to cash. Adjusted free cash flow from continuing operations in the quarter was $111 million, which included working capital benefits.

The working capital benefit we saw in the quarter resulted from the initiatives we implemented to improve our working capital management over the back half of 2019, including improved management of inventory, days sales outstanding and days payables outstanding. Moving to the full year. We saw good top line performance across our segments as consolidated revenue increased by 6%, operating income grew 54% to $90 million, and adjusted EBITDA grew 7% to $329 million. Our consolidated results were primarily driven by our Route Based Services segment where growth was driven by new customer additions, volume, pricing, the benefit of acquisitions, increased route density and operational leverage. These improvements were partially offset by the negative impact of foreign exchange. We were pleased to end the year with approximately 50 basis points of EBITDA margin expansion within Route Based Services. As it relates to cash, we exceeded our previously communicated expectations with $153 million of adjusted free cash flow for the year. Let me now cover the operating performance of our Route Based Services segment. Looking at the fourth quarter, Route Based Services revenue increased 4%, driven primarily by our home and office water delivery business, which grew in excess of 6%, of which organic revenue growth was 4% in the quarter, driven by a combination of customer and volume growth as well as improved pricing. Gross profit increased 6% to $260 million driven primarily by the revenue growth drivers I just mentioned and operational leverage, which resulted in 120 basis points of gross margin expansion.

Additionally, we were able to reduce overhead costs and saw SG&A as a percentage of revenue decrease by 230 basis points, resulting in an operating income improvement of $17 million and an increase in EBITDA of 25%. As we look to 2020, we believe we are well positioned for continued growth within our Route Based Services segment through our Customer four Life program, consumption growth as consumers continue to migrate toward healthy hydration and away from sugary sweetened beverages as well as continuing to benefit from cross-selling opportunities, pricing and additional growth through our tuck-in acquisition program. Let me now provide a few comments on Primo's fourth quarter 2019 results. For those of you less familiar with Primo, the Primo business is driven by three key categories or channels. First, the dispenser business, which we consider the razor and the razor blade business model. Primo sells a full lineup of innovative and stylish dispensers through major retailers and online at various price points. These dispenser sales help increase household penetration, which then drive recurring purchases of the two higher-margin water businesses. The razor blade offering is comprised of two water businesses. First, the exchange business where consumers can exchange their empty bottle for a prefilled 3- or 5-gallon bottle of purified water. The exchange business is present at approximately 14,000 locations across the U.S. and Canada and leading retailers such as the Home Depot, Lowe's Home Improvement as well as Kroger, Safeway and Albertsons. The second water category is the refill business.

The refill machines incorporate a multistep filtration process for consumers to refill their own empty bottle in multi-gallon formats for as little as $0.25 a gallon. The refill machines are located at over 23,000 indoor and outdoor locations throughout the U.S. and Canada across a variety of retail channels. Turning to Q4 performance. We were pleased with the results seen during the quarter, with all channels in growth. Combined net sales increased 13% to $80 million, driven primarily by the dispenser and exchange channels. Excluding sales from the ICE assets that were sold in June of 2019, sales increased 15%. Dispenser sales increased 45% to $18 million due to growth in consumer demand and retailer orders related to certain fourth quarter promotional activities. Consumer demand, which is measured as the dispenser unit sales to end consumers, increased 57% to a record 248,000 units in the quarter. In the exchange business, record dispenser sell-through helped achieve Primo's 31st consecutive quarter of same-store unit growth of more than 6%.

And exchange sales increased over 20% to $22 million. The increase in exchange sales and units was aided by an increase in a number of locations and consumer-focused promotional efforts, including instantly redeemable coupons associated with the purchase of a dispenser and new display and in-store signage. Lastly, in Primo's refill business, Primo continues to make improvements in refill operations, machine uptime, localized sales efforts and locations. This helped drive an increase in revenue of 4% in Q4, when excluding results from the ICE business, which was sold earlier in 2019. Primo's overall gross margin percentage was 24.7% compared to 28% due to a mix shift in dispenser sales and increased promotional spend in the exchange business. The increased promotional spend within the exchange channel was associated with consumer-focused promotional efforts, including the instantly redeemable coupons linked with the purchase of a dispenser. Although the promotional activities within the dispensers and exchange put pressure on gross margins, these activities generate significant customer growth and will benefit the company over the coming months. Gross margin as a percentage of net sales from the refill segment improved 110 basis points, driven by a 2% increase in 5-gallon-equivalent units, which leveraged the fixed nature of certain costs in Primo's refill segment.

The strong revenue growth resulted in adjusted EBITDA increasing 8% to $13 million. With a solid fourth quarter in the books, we look forward to the continuing growth from Primo as we look to full year expectations for 2020. As a quick summary and looking out to 2020. Overall, we are pleased with our 2019 financial performance and execution against our guidance. As we move into 2020, we have built momentum within our Route Based Services segment where we have a number of growth initiatives working effectively and a robust pipeline of tuck-in acquisitions, setting us up well to deliver on our 2020 goals. Those goals include top line growth of 4% to 5% as well as adjusted EBITDA between $300 million and $310 million, inclusive of tuck-ins. These expectations exclude our Coffee, Tea and Extract Solutions segment, which we expect to divest in the first quarter of 2020, and in turn, it would be included in discontinued operations. These expectations also exclude Primo as we will only have a part year benefit of Primo's operation in 2020, and the exact amount of the benefit is dependent upon when we close the transaction. To provide you with some full year expectations for Primo. Revenue is expected to grow by 5%. Adjusted EBITDA will be approximately $57 million and capex will be $22 million to $25 million. In addition, we are expecting to benefit from $7.5 million of synergies in 2020. As a reminder, we have scheduled our Investor Day for March 24, which will incorporate a modeling presentation for the combined entities. The presentation will be publicly broadcast through our website.

As it relates to our adjusted free cash flow goals for 2020, we expect adjusted free cash flows of $115 million to $125 million. We provided an exhibit in the back of our press release, which outlines the drivers of our 2020 adjusted free cash flow. Overall, we expect $300 million to $310 million of adjusted EBITDA, including tuck-ins, around $10 million of cash taxes and $75 million of interest as well as capital expenditures of around $100 million. Again, these projections do not include any expected benefit of the Primo acquisition, which we will cover during our Investor Day on March 24, and it excludes our S&D Coffee and Tea business. For those of you who are working on your models, S&D contributed approximately $35 million of adjusted free cash flow in 2019. You were able to obtain the revenues, margins and EBITDA for S&D in the exhibits within our press release. And looking at capital deployment for 2020, we will continue to return funds to shareholders through our quarterly staple dividend. In addition to our quarterly dividend, we will continue our share buyback program. As Tom noted, our Board of Directors approved the new 12-month share repurchase program of up to $50 million of our outstanding common shares. And we intend to execute against this program in 2020. We will also continue our tuck-in acquisition program with a target of $40 million to $60 million in acquisitions, and we plan to refinance our euro debt after the second call date in July.

I'm going to now turn the call back to Tom.

Thomas J. Harrington -- Chief Executive Officer

Thanks, Jay. We're very excited about the opportunities that lie ahead of our business, especially our transition to a pure-play water solutions provider, and in turn, the value creation that we will generate for all stakeholders. As we look at our Route Based Services business, we will strengthen the business through a number of actions that we expect will deliver top line revenue growth of 4% to 5%. First, we will increase net customer growth in both home and office delivery water and water filtration across our 21-country footprint, where we're the leading home and office water delivery business as well as a top five player within water filtration across our footprint. Second, we continue to experience secular tailwinds in the form of shifting consumer preferences as the consumer continues to move toward healthy hydration and away from sugary sweetened beverages, leading to continued consumption growth. Third, the improvements in our customer experience and in turn our Customer four Life philosophy.

These are supported by improved communications, quality customer service and ongoing product innovation, helping to drive the up-sell and cross-selling opportunities in such areas as the introduction of our Pureflo Filtration technology, improved product offerings such as Mountain Valley spring and sparkling water as well as the rollout of our mobile app. Fourth, we will continue to execute our historical pricing actions across our footprint; and fifth, we'll continue our annual tuck-in program. We'll also focus on achieving 20 to 30 basis points of EBITDA margin expansion driven by improved route density, customer mix and customer life and a continued focus on sustainability, particularly in the areas of water sourcing and our carbon footprint that resonates with consumers. As we complete the first quarter of 2020, we anticipate closing on the sale of S&D Coffee as well as the acquisition of Primo Waters, thereby, transitioning to a pure-play water company. Under this new pure-play model, we will be the North American market leader in home and office delivery water, self-service refill, retail returnable water or exchange, dispenser sales and a top five player in a point-of-use water filtration category. In addition, we remain the market leader in home and office delivery water in Europe as well as a top five player in the European water filtration category.

This transition builds upon the successful partnership between our DS Services North American business and Primo and creates a water-focused company positioned to excel in the higher-growth and higher-margin water categories where we will be able to offer a full range of hydration solutions to consumers when, where and how they want it. The combined company will grow through continued product and service innovations, marketing partnerships and highly synergistic tuck-in acquisitions as well as the opportunity to reach more consumers to more channels than either Cott or Primo could have reached on their own. We also plan to expand Primo's products and services across our European footprint, and we expect the transaction will deliver $35 million of cost synergies. And looking at other financial improvements, we expect the transition to drive accretion to our earnings, and we would see our leverage reduced targeting approximately three times post synergized EBITDA while at the same time, improving our credit profile. In addition, our business will remain largely insulated from commodity fluctuations as we are vertically integrated in the U.S., have implemented energy surcharges across our entire route based footprint and we use our 3- and 5-gallon water bottles up to 50 times. Before moving to Q&A, I wanted to take a moment to thank all of our associates without whom we'd not be able to accomplish everything we did in 2019 as well as everything we plan to accomplish going forward. Thank you all. I'd also like to thank Jarrod for all these efforts over the last five plus years, running our corporate IR and FP&A programs in support of our shareholders.

As a part of our ongoing succession planning throughout our company, we're pleased to announce that Jarrod is being promoted to Chief Financial Officer of our European operation. We wish Jarrod well and look forward to following his continued growth in his new role. Jarrod will transition over the next few months as we will be adding new Investor Relations leadership, who will focus on both IR and communications. In addition, we engaged Alpha IR to assist with our IR function at the end of 2019 and have included their contact information on the press release issued this morning as well as on our website. Alpha IR will not only assist us with our core IR functions, but they will strengthen our efforts in relation to messaging, new investor and analyst outreach and targeting efforts. Finally, I'd like to thank the S&D team for their efforts this year and wish them well as they enter the next chapter of the company's story history.

I'll now turn the call back to Jarrod to move us to Q&A.

Jarrod Langhans -- Vice President of Investor Relations and Corporate FP&A

Thank you, gentlemen. I look forward to continuing to support the business in my new role. [Operator Instructions]. Thank you for your time. Operator, please open up the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Peter Grom of JPMorgan. Your line is open

Peter K. Grom -- JP Morgan Chase & Co -- Analyst

Good Morning I just wanted to ask on the initial 2020 guidance. So just from your standpoint right now, I mean, kind of what are the puts and takes that would push EBITDA to the high end or the low end? Given it's still early in the year, have you embedded kind of any cushion in the guide? And then just quickly on the margin performance, which was really strong in Q4, how should we think about margin progression as we look out to 2020?

Thomas J. Harrington -- Chief Executive Officer

Yes. Thanks, Peter. Look, I think we've worked very hard to be very consistent on delivering against our commitments, I think, manifesting itself in the performance over the last three or four quarters. So clearly, our go-forward would be in the same thing, is that our guidance would be numbers that we have confidence that we'll deliver. And the biggest single risk is execution. And our track record now is one of improving execution over time in multiple parts of our business unit. Jay, do you want to take the...

Jay Wells -- Chief Financial Officer

Yes. On more the number side, Peter, if you look at our EBITDA for 2019, excluding S&D, that's $287 million. I mean, we've given historic guidance that organic EBITDA growth of $10 million, tuck-ins $5 million to $10 million. So if you put that together, you're at $15 million to $20 million. Middle of that guidance would be $18 million. You add the $18 million to $287 million, you get to $305 million, right in the middle of the range of the guidance we've given. So that was the math behind the $300 million to the $310 million. On margin, we have guided our Route Based Services, EBITDA margin expansion of 20 to 30 bps a year, and we continue behind that guidance.

Peter K. Grom -- JP Morgan Chase & Co -- Analyst

Right. Thank you. Appreciate it. Thank you.

Operator

Your next question comes from Derek Lessard of TD Securities. Your line is open

Derek J. Lessard -- TD Securities Equity Research -- Analyst

Yes. Congrats on a pretty good year, guys, and some transformational changes, and congrats, Jarrod, on your promotion. Maybe just following up on the last question. I guess like drilling down on the operating leverage. It was really strong this quarter. I was just wondering if you can maybe just add some color to some of the drivers there?

Thomas J. Harrington -- Chief Executive Officer

Yes. I mean, clearly, it's the roll-forward benefit of the organic growth and the tuck-in acquisitions on the business. I think it's more consistent execution across the base operation, so we had no surprises, no hiccups right, so we've moved that. So we're pretty confident in the 20 to 30 in our ability 20 to 30 basis points go-forward in our ability to consistently deliver on that number in 2020.

Derek J. Lessard -- TD Securities Equity Research -- Analyst

Okay. And, Jay, maybe one for you. I think you did point to the Primo adjusted EBITDA of $57 million. I just wanted to does that include the $7.5 million in synergies or no?

Jay Wells -- Chief Financial Officer

So it's not. So it's full year basis will be 57. And that's going to be pro rata based on when we close the deal, but the 7.5% is fully back-end loaded. So that will be when we see that benefit. So they are on top of and it does exclude to be clear, it is adjusted, so it does exclude any costs to achieve.

Derek J. Lessard -- TD Securities Equity Research -- Analyst

Okay, thank you.

Jay Wells -- Chief Financial Officer

Thank You

Operator

Your next question comes from Daniel Moore of CJS Securities. Your line is open

Daniel Joseph Moore -- CJS Securities -- Director of Research

And congrats, Jarrod, as well. Well deserved. Wanted to maybe touch on we have probably have Billy here, maybe just talk a little bit about the refill business on Primo seems to have turned the corner. Obviously, you mentioned some promotion activity that's helped. But any more color around that and sort of the direction for 2020 would be greatly appreciated.

Billy D. Prim -- Interim President and Chief Executive Officer

Yes. Thank you. We have seen a nice turn in the refill business. It took us a little longer than we would have liked to get our credit card readers in place and put together the metrics for downtime and our new routing schedule. But once we got that in place, we have seen consistent improvement over the last four or five months. It is operating well, and we feel very good about the future.

Daniel Joseph Moore -- CJS Securities -- Director of Research

Going to sneak one in for Jay and then jump out, but on the cash flow guide for next year, you pulled the screen pretty hard this year on working capital. I mean that in a good way. The guidance is implied neutral for next year, just confidence around that and upside to downside potential.

Jay Wells -- Chief Financial Officer

And I think you've got it right. We did and I said before, we've been experiencing some FX headwinds. So in order to meet our guide, we did a very good job of getting the issues that we've had with working capital taken care of. So very happy how we closed the year. And I feel that it's sustainable what we did. So I don't think you'll see any clawback next year. So very confident on flat working capital as we look to 2020.

Daniel Joseph Moore -- CJS Securities -- Director of Research

They're good, thank you.

Jay Wells -- Chief Financial Officer

Thanks, Dan.

Operator

Your next question comes from Derek Dley of Canaccord Genuity. Your line is open

Derek Dley -- Canaccord Genuity Corp -- Analyst

Just following up on that last question. Is there a reason why or can you just help us understand why in Q4 you do tend to get quite a decent-sized working capital benefit?

Jay Wells -- Chief Financial Officer

Derek, yes, I think you're looking at two things. One, you look at the seasonality of the business as we get out of the summer months, which is our busier seasons for hydration. We end Q3 with significant AR. So that's been part of it. Two, as I've talked about, our overall working capital management specifically over in Europe has been a project that I'd been focused on. And I think you just saw the results of hard work, putting better controls over managing inventory, managing AR and managing payable come to fruition within the fourth quarter. I do not see that being the same cadence this year, but that's really when we saw calling back some issues we had at the beginning of the year with working capital and saw the benefits of the improvements being implemented at the back half of the year.

Derek Dley -- Canaccord Genuity Corp -- Analyst

Okay, that's helpful. And then just in terms of the tuck-in M&A front, can you just remind us what you're seeing in terms of multiples for sort of the small and the medium-sized acquisitions?

Thomas J. Harrington -- Chief Executive Officer

Yes. Derek, this is Tom. We see pretty much normal course on both sides of the Atlantic. We've articulated before the U.S. are a little bit lower multiples and Europe is a little bit higher. But we retain a good list of opportunities that you've seen us execute fairly aggressively in the most recent past. And we have a good list of opportunities as we move forward. I generally think the same math that we've experienced historically.

Derek Dley -- Canaccord Genuity Corp -- Analyst

Okay. And then just last one for me. Just in terms of the synergy targets here for Primo. Obviously, it's a big number, that $35 million. Just remind us again, I know you went through it on the previous call, but just the buckets or where you get where you expect to get the most leverage on those synergy targets?

Thomas J. Harrington -- Chief Executive Officer

There's really three buckets. So it's think largely back office, which is the redundant corporate costs and customer service and call center and that, which is I don't have it in front of me, but the order of $20 million to $25 million of the number. Then there's opportunities in procurement. So bottles and boxes and lids and all the like of similar components that we buy on both sides of the business. And then what I'll call logistics, but think facilities, it's logistics and facilities. So all the facilities on the Primo side, which are largely redundant or very close to what is typically a larger DS facility. The teams have engaged already in terms of developing a plan. So we remain confident on the $35 million. And obviously, we're focused on the first $15 million, which gets us to the $7.5 million we expect in calendar 2020.

Jay Wells -- Chief Financial Officer

Primo has been very good at working with us early, Derek. We already have robust plans in place. We've got teams put in place, charters put in place for every workstream. We've already identified more than the Phase one first tranche, as Tom said of the first $15 million to make sure we deliver the $7.5 million this year. But we also have good plans come into place to deliver the whole $35 million by the end of next year. And that's how we will end up delivering basically a flop over of $10 million in 2022.

Derek Dley -- Canaccord Genuity Corp -- Analyst

Got it. Okay, thank you very much.

Jay Wells -- Chief Financial Officer

Thanks, Derek.

Operator

Your next question comes from John Zamparo of CIBC. Your line is open

John Zamparo -- CIBC Capital Markets -- Analyst

Thanks. Good morning, guys. I wanted to ask about the filtration side of the business and in particular, how the launch of Pureflo has been received. And just generally, your thoughts on this segment. And when you add a filtration customer, is it typically a new customer add? Or is it someone switching from being an existing HOD customer?

Thomas J. Harrington -- Chief Executive Officer

Sure. We started the soft rollout of Pureflo in Q4. We are pleased with the early results. Consumer feedbacks, frankly, have been better than we would have hoped in terms of the technology and the solution, so we're quite pleased. Most of the customers are new, although we are also converting our existing filtration base to the new technology because we think it will help with retention, As we bring them into the, let's call, the 21st century from a technology perspective. We don't see any changes in people converting from filtration to our HOD business. We have the lowest quit rate we've experienced in my memory and the highest retention, which says our HOD bottle water business is more stable than it's ever been, frankly. So we're quite confident about that. And our plan is to participate in the growth of water filtration. It's real and we'll do that across our entire footprint using the innovation of the technology as well as we benefit from Primo, who has good water filtration technology. So we believe we'll be in a stronger place in filtration when we're finished with the integration than today.

John Zamparo -- CIBC Capital Markets -- Analyst

Okay, that's helpful. And then coming back to the guide, when it comes to the 4% to 5% continuing operations revenue growth expectation. Can you talk about the split of or your expectations on the split of our guests organic adds versus volume or pricing versus tuck-in contributions?

Thomas J. Harrington -- Chief Executive Officer

Yes, I think it will be the historical numbers we've shared, which would be think 3% organic, think 2% tuck-in is really the way to think of that. And that will be wrong, but it will be a pretty good sense of where it will come from. So we expect the base business to grow around 3%, and then we'll execute tuck-ins around 2%.

Jay Wells -- Chief Financial Officer

Yes. And as we say, the levers, the three things we talked about, they vary by quarter, but those are three different levers that we pull on. We saw good pricing and customer growth in the quarter. And volume and customer growth is kind of hand-in-hand. And we expect that to continue.

Thomas J. Harrington -- Chief Executive Officer

And we'll continue to price, right? So it's those three levers are all part of our plan and included in that 3% for 2020.

Jay Wells -- Chief Financial Officer

And why we're on it. One thing I did want to mention on the call was nobody's asked about Q1 2020 and what that might look like. And I did want to add a few comments on that. So if you look at 2019 excluding S&D, we had approximately $420 million of revenue and $53.7 million of EBITDA in Q1. Again excluding S&D and Primo, we'd expect to see 4% to 5% top line growth and 4% to 5% EBITDA growth in the quarter. And the reason why you're not seeing more leverage down the P&L., it is a shorter season. It's one of our slowest times of the year and it's when we're investing in the summer season. So I just wanted to make sure we talked a little bit about Q1 before we got off the call.

John Zamparo -- CIBC Capital Markets -- Analyst

Okay, that's great.

Jay Wells -- Chief Financial Officer

Thanks, john.

Operator

Your final question comes from Derek Lessard of TD Securities. Your line is open

Derek J. Lessard -- TD Securities Equity Research -- Analyst

Yes, just one more for me. I just wanted to, I guess, confirm what 2019 EBITDA was for Primo?

Jay Wells -- Chief Financial Officer

It was the 50 I got to pull up the slide. It was $51 million. Got to pull up...

Billy D. Prim -- Interim President and Chief Executive Officer

$51.3 million.

Jay Wells -- Chief Financial Officer

$51.3 million. Thank you, Billy.

Operator

That was our final question today. I will now return the call to our presenters.

Thomas J. Harrington -- Chief Executive Officer

Thank you all for joining this Q4 2019 call. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Jarrod Langhans -- Vice President of Investor Relations and Corporate FP&A

Thomas J. Harrington -- Chief Executive Officer

Jay Wells -- Chief Financial Officer

Billy D. Prim -- Interim President and Chief Executive Officer

Peter K. Grom -- JP Morgan Chase & Co -- Analyst

Derek J. Lessard -- TD Securities Equity Research -- Analyst

Daniel Joseph Moore -- CJS Securities -- Director of Research

Derek Dley -- Canaccord Genuity Corp -- Analyst

John Zamparo -- CIBC Capital Markets -- Analyst

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