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Good morning. My name is Pam, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Primo Water Corporation's Third Quarter 2021 Results Conference Call. [Operator Instructions] I'll now turn the conference over to Jon Kathol, Vice President of Investor Relations. Please go ahead.
Welcome to Primo Water Corporation's Third Quarter 2021 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 Primo's website at www.primowatercorp.com and will be available for a playback there for 2 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 and the company's annual report on Form 10-K and quarterly reports on Form 10-Q and other filings with securities regulators.The company's actual performance could differ materially from these statements. and the company undertakes no duty to update these forward-looking statements, except as expressly required by applicable law. A reconciliation of any non-GAAP financial measures discussed during the call with the most comparable measures in accordance with GAAP when the data is capable of being estimated, is included in the company's third quarter earnings announcement released earlier this morning or on the Investor Relations section of the company's website at www.primowatercorp.com. I am accompanied by Tom Harrington, Primo's Chief Executive Officer; and Jay Wells, Primo's Chief Financial Officer. As part of this conference call, we have included a deck online at www.primowatercorp.com that was designed to assist you throughout our discussion. Tom will start today's call by providing a high-level review of the third quarter and our progress on the strategic initiatives. Then Jay will discuss our third quarter financial performance in greater detail and offer our outlook for the fourth quarter and the full year 2021 before handing the call back to Tom to provide a long-term view ahead of Q&A.With that, I'll now turn the call over to Tom.
Thank you, Jon, and good morning, everyone. Before we review our performance for the quarter and update our progress against strategic initiatives. I wanted to welcome both Kate Kotowski and Jeff Johnson to the team. Kate has joined as our Chief Operating Officer, and with experience in both sales and operational strategy, Kate will strengthen our management team and drive innovation, accelerate growth and propel operational excellence of our differentiated Water Your Way platform. Jeff joins our team as Senior Vice President, Global Operational Excellence and Service Optimization. Jeff's leadership in the logistics and transportation industry will be leveraged to enhance margins and improve our return on invested capital. We welcome both Kate and Jeff to the team. Our third quarter financial results demonstrated the strength of our pure-play water offering as demand for our products and services continued to increase during the quarter. Our global cooler quit rate improved by 240 basis points compared to prior year and the increased demand has continued through the month of October. As we previously communicated, we have implemented a series of pricing actions to address current inflationary costs across the entirety of our customer base, and we continue to benefit from the energy surcharge and delivery fees that mitigate the increases in energy-related costs especially fuel. As Jay will outline later in his remarks, we remain comfortable with our full year adjusted EBITDA guidance of between $390 million and $400 million. As we continue to transform our business, we announced earlier today our plan to exit the North American single-use retail bottled water business, primarily 1-gallon, 2.5-gallon of case pack water as part of our overall strategy to increase profitability and further reduce our environmental footprint. This exit will take place over the next several quarters and does not include our large-format exchange, refill and dispenser businesses nor our Mountain Valley brand, which sells products primarily in glass bottles. Jay will cover the modeling effects of this decision later in his remarks. During the quarter, revenue increased 6% to $551 million compared to $518 million, 5% excluding the impact of foreign exchange, and adjusted EBITDA decreased 4% to $106 million compared to $111 million driven by higher operating costs. The operational challenges we faced during the quarter were largely a result of an increase in COVID-19 infections across our workforce. We did not forecast nor expect that hundreds of route drivers would be adversely impacted by COVID-19. This created operating pressures as we work tirelessly to fill the short-term openings caused by a route sales representatives missing work. Where possible, we deployed a series of tactics to service as many routes as possible, including hiring temporary labor, increasing over time and had managers and corporate staff going into the field supporting route operations. These route openings and our efforts to fill the opening short term resulted in a higher cost of service. Our teams have once again responded to the challenges presented by the pandemic, and I'm proud of the efforts of the team and pleased with everyone's commitment to safety and customer service. As we exited the quarter, we started to see a decline in the number of COVID cases across our operations that has continued through October and are returning to the normal service levels and expected operating costs as we work hard to meet the current levels of elevated demand, especially in our North America Water Direct and Exchange business.Globally, our customer base grew to nearly $2.7 million in the third quarter. As I mentioned last quarter, the addressable 3- and 5-gallon water market of U.S. residential households alone is estimated to be between $22 million to $29 million and growing. The residential opportunity for increased sales of 3- and 5-gallon returnable water remains a top priority as the category has 2x to 3x the market potential versus today's installed base. We are focused on increasing household penetration through execution of our Razor, Razor blade model.Our water dispenser sales provide an important entry point to access these households and capitalize on our 4R. Recurring Razor-Razorblade revenue model. The attractiveness of the recurring purchase behavior is the ability to continually generate sales as part of our Customer for Life strategy. Our internal research indicates that among last year's North American dispenser sell-through sales of roughly 1 million units, 60% of respondents are new to the category. Of those likely to become a future dispenser household, research indicates their sourcing preference has 45% for Water Direct, 30% prefer Water Exchange and 25% prefer Water Refill. We should continue to capture at least our fair share of this growth as our 4R model remains one of our strategic advantages. While Q3 dispenser sales were negatively impacted by the extraordinary costs for ocean freight as well as the burden of tariffs implemented in January. We're hopeful that we will gain an exemption from the tariffs imposed as we move through Q4 and into 2022, and that ocean freight costs moderate over time. As it relates to our efforts in ESG, we remain focused on elevating our position on environmental issues and finding new ways to honor our commitment to clean water and sustainability. That is why earlier today, we announced our intention to exit the category of single-use plastic bottle water sold in retail channels in North America. We expect that exiting this category, will improve our profitability, enable us to provide more focus on our Razor-Razorblade revenue model enlighten our environmental footprint. Our progress in ESG improvement is ongoing.Within the last year, we achieved carbon neutrality in our U.S. water operations and our European water business has remained carbon neutral for the last 10 years. In December 2020, we became the first company to certify a spring water source under the Alliance for Water Stewardship standards and added a second in January. We expect to certify 2 additional locations before the end of 2021 and remain committed to achieve in carbon neutrality across our global water operations by the end of this year.In addition, we welcome Mukesh Jha as our Vice President of ESG. He is an accomplished ESG professional with a 20-year track record of success in leading ESG programs of 4 global organizations. Our year-to-date results, coupled with our confidence in our pure-play water model have driven our decision to maintain our full year adjusted EBITDA outlook between $390 million and $400 million. We expect to grow organically by approximately 6% plus some additional revenue from our tuck-in M&A strategy. We remain on track to achieve the higher end of our targeted $40 million to $60 million range of M&A tuck-ins in 2021.I'd like to turn the call over to Jay to review our third quarter financial results in greater detail.
Thank you, Tom, and good morning, everyone. Starting with our third quarter consolidated results. Revenue increased 6% to $551 million compared to $518 million, excluding the impact of foreign exchange, revenue increased by 5%. The gains were largely driven by growth in our Water Direct and Exchange businesses, partially offset by declines in our Water Refill and Water Dispenser channels. Adjusted EBITDA decreased 4% to $106 million compared to $111 million. As Tom discussed, the decrease was driven by higher operational costs related to COVID-19 as staff and driver availability during the Delta peak, along with the increased demand for products and services from residential consumers and B2B customers challenged our normal high levels of service. We were also adversely impacted by the effects of Hurricane Ida in September, losing as much as a week of operations in Louisiana and smaller outages as the storm tracked up the East Coast. Fortunately, all of our associates are safe and operations have fully resumed. These costs were partially offset by increased pricing and they benefited from continued operating leverage improvements.Turning to our segment level performance for the quarter. In North America, revenue increased 5% to $413 million compared to $393 million. The increase was driven by strong volume and increased pricing in our Water Direct business, partially offset by lower revenue from our Water Refill and Water Dispenser channels. Revenue from our residential consumers grew by 2% during the quarter and North American B2B revenue was up 12% as we are seeing steady progress on the lifting of restrictions across the channel.Adjusted EBITDA in North America decreased 3% to $88 million due to the operational challenges I just discussed. Importantly, we exited the quarter in better shape and are now closer to achieving our service level targets.Turning to our Rest of World segment. Revenue increased by 11% to $138 million, excluding the impact of foreign exchange, revenue increased by 7%. The increase was driven by growth in residential consumers with revenue from residential consumers being up 24%. Revenue from B2B customers was flat for the quarter as the performance of our Water Direct B2B customer base remains tied to the relative level of the return to the office in each of the countries we serve. We continue to work towards an efficient and low-cost rollout of our products and services for residential consumption in Europe to further diversify our customer base and better balance the customer needs. The key highlight in the Rest of the World segment is the measure of organic cooler adds in the quarter. When coupled with improved retention rates, we are beginning to see the benefits from our ongoing efforts to improve operating performance in this region. As we have discussed in past quarters, we believe that our existing footprint and knowledge of the water services market in Europe leaves us in a great position to capture the revenue opportunities we've identified. Adjusted EBITDA in the Rest of World segment decreased 10% to $23 million as government subsidized furlough programs are ending in many European markets.Turning to our liquidity position and balance sheet. We ended the quarter with a cash balance of $125 million and available net borrowing capacity on our cash flow revolver of $141 million for a combined total liquidity position of $266 million. Our net leverage ratio is 3.7x. And as we will discuss in greater detail during our upcoming Investor Day, we are now targeting a net leverage ratio of less than 2.5x by 2024. Looking to the fourth quarter, based on the information we have available to us as of today, we currently expect consolidated revenue from continuing operations to be between $540 million and $550 million. We also expect that fourth quarter adjusted EBITDA will be in the range of $108 million to $118 million. As part of our overall strategy to increase profitability and further reduce our environmental footprint, this morning, we announced the plan to exit our North American single-use retail bottle water category consisting primarily of 1 gallon, 2.5 gallon and case pack water. The plan does not affect our large form and exchange, refill and dispenser businesses or our Mountain Valley brand, which sells products primarily in glass bottles.On an annualized basis, these products have accounted for revenue of approximately $140 million. After exiting these product lines, we expect that our overall adjusted EBITDA margin will improve by roughly 100 basis points. We expect most of the effects to begin in 2022, and we do not expect the costs from exiting these businesses to be immaterial. For the full year 2021, revenue is still projected to grow organically by approximately 6%, and we are maintaining our outlook for adjusted EBITDA to be between $390 million and $400 million. We also expect around $10 million of cash taxes, $68 million of interest as well as capital expenditures of around $150 million. The CapEx figures reflect an increase versus our previous forecast of $135 million primarily because of the higher cost of ocean freight and tariffs for our dispensers. We do expect these factors to abate at some point, which one have future free cash flow. Turning to other aspects of capital deployment, we purchased approximately 1.8 million shares for $29 million during the third quarter as part of our $50 million share repurchase program. And earlier this week, our Board of Directors authorized a quarterly dividend of $0.06 per common share. The dividend is payable in cash on December 3, 2021, and the shareowners of record at the close of business on November 23, 2021. With respect to M&A, we have maintained our disciplined approach and have been focused on accelerating the robust pipeline of tuck-in opportunities in front of us. During the quarter, we announced the acquisition of Earth20 of an Oregon, Health Waters of Pennsylvania and the Get Fresh business in Poland, and remain on track to achieve the higher end of our targeted $40 million to $60 million of tuck-ins this year.In terms of our growth outlook, after 2021, we are looking forward to our Investor Day scheduled for November 17, when we will provide details behind our forecast for high single-digit organic revenue growth. Continued execution of $40 million to $60 million of highly accretive tuck-ins annually.Enhanced EBITDA margins of 40 to 60 basis points per year in addition to the onetime benefit of approximately 100 basis points from our planned exit of the single-use retail bottle water business. Targeted annualized adjusted EBITDA in excess of $500 million by 2024, and net leverage of less than 2.5x by 2024. I will now turn the call back to Tom.
Thanks, Jay. We remain focused on executing our differentiated Water Your Way platform. And we will leverage our pure-play water model to drive organic growth by approximately 6% in 2021. We will continue to enhance the customer experience through improving customer-facing tools by building out more diverse e-commerce solutions and improving the customer experience through flawless delivery. We will continue to execute against our Razor-Razorblade model with growth in the number of dispensers sold driving top line growth through the sale of water products. In Europe, we're accelerating our Water Refill, Water Exchange and Water Dispenser businesses to diversify our customer base and capture growing demand in the residential market.Additional focus areas include leveraging our predictable and reliable top line growth while protecting our efficiency improvements, and maintaining our highly variable cost structure, identifying and executing highly accretive tuck-in acquisitions across North America and Europe, and seeking new ways to further enhance our standing as an ESG and sustainability leader. Supporting our initiatives are more structural and thematic tailwinds that are driving consumers towards healthy hydration solutions. The growth in the health and wellness category continues to support our prospects of gaining share of the broader beverage category. COVID continues to elevate the health and wellness conversation and consumers are increasingly conscious of their overall health and well-being. In addition, the perception of the declining quality of municipal tap water is well documented, which supports the growth of our products and services. Tap water as a primary drinking source is expected to continue to decline for the foreseeable future. As Jay noted, we expect our consolidated fourth quarter revenue to be between $540 million and $550 million and for our adjusted EBITDA to be between $108 million and $118 million. For full year 2021, we are forecasting revenue growth of approximately 6% and are maintaining our adjusted EBITDA forecast to be between $390 million and $400 million. We continue to see the elevated demand, while our staffing has begun to return to normal with COVID cases reduced by approximately 80% from mid-Q3. We expect to see sustained strength from our Water Direct and Exchange residential customer base and improvement from our Water Direct B2B customer base as we progress through the fourth quarter and into next year. We are also maintaining a strong pipeline of tuck-in M&A candidates, which we expect to execute during the remainder of this year. Lastly, as a reminder, we are hosting a virtual Analyst and Investor Day on November 17 at 9:00 a.m. Eastern Standard Time, and I hope you will join us. Registration instructions are located on the Investor Relations section of our website. At the Investor Day, we will provide details behind our multiyear forecast for high single-digit organic revenue growth, continued execution of $40 million to $60 million of highly accretive tuck-ins annually, enhanced EBITDA margins of 40 to 60 basis points per year in addition to the onetime benefit of approximately 100 basis points from our planned exit of the single-use retail bottle water business. Targeted annualized adjusted EBITDA more than $500 million by 2024 and net leverage of less than 2.5x by 2024 as well. Once again, I'd like to thank the Primo Water associates across the business for their tireless efforts to serve our customers. And with that, I'll turn the call back over to Jon to move us to Q&A.
Thanks, Tom. [Operator Instructions] Operator, please open the line for questions.
[Operator Instructions] Your first question comes from Kevin Grundy with Jefferies.
Two questions for me, if I may. First on the quarter and then a follow-up on the long-term guidance. So first, I think it'd be helpful just maybe spend a little bit more time on some of the pain points from a cost perspective around labor and route inefficiencies from the pandemic, how that progressed during the quarter? What you saw in October in terms of some of these costs improving, particularly around labor and availability that gives you comfort on the guidance for the year? And then I'll follow up with the long-term guidance.
Sure, Kevin, this is Tom. In the middle of the quarter, I think late July, early August, we began to experience a spike from the Delta variance. In order of magnitude would be roughly 10% to 15% of our route sales associates were infected. And if you think about that, there's a couple of days before they get tested where they're not feeling well, then they get tested, they're positive, they're sideline for at least 2 weeks. And of course, this didn't happen ratably one in each building, it happens in buckets. So I'll give you an example of Denver, Colorado. I have something like 20 routes, 7 routes were open. So we don't have the available workforce, obviously, we don't carry that kind of incremental headcount to cover. So we scrambled and then that then put us behind on our ability to effectively service the customer. We missed customers, we missed revenue. And then we incurred the incremental cost of temporary labor, which are not properly trained. We incurred lots of overtime, which is short term, it's not long term, a good solution. And then we flew people in from all over. I'll use Jay as an example. Jay was on a route in Denver to help out as an example, so we put everybody available to address the openings.As we moved through September, the cases began to drop. And we -- in October, as an example, current cases are 80% lower than what they were at the peak. So we've now begun to return to more normal operations. And therefore, we're beginning to see more normal operating costs as we're not flying people all over, and we're properly servicing our customers. So that's -- hopefully, that gives you a flavor for the impact of the variant. Obviously, we wouldn't have forecast that. And happily, in October, it's behind us, and we're pretty much back to normal at this point in time.
And you could even see it in our September results. As -- if you look at September standalone, we were at 11% revenue growth, EBITDA growth of 12%. So you can see, as we came out of the quarter even, it wasn't quite back to where it should be, but it showed up in our results in September, and it could, frankly, continued on into October.
Got it. And then just if I could follow up on the long-term guidance, and I know you will be spending more time on this at the Analyst Day. So I think we can appreciate that. But maybe just for purposes of this call, spend a little bit of time on the high single-digit organic sales growth guidance, which is great. Maybe just talk broadly about how you see the building blocks for that across your business and geographies. And then the margin outlook is also encouraging. Maybe just talk about the key factors driving it, how that compares? I think historically, particularly on the HOD side, it's been 10 to 20 basis points of margin improvement. And now you're looking for 40 to 60 across the business. So quite a step up and pretty encouraging in the cost environment where a lot of companies are obviously struggling. So I think that would be helpful. And then sorry for being a bit for both here. But just the last one, I think would also be helpful for folks. Just looking at the EBITDA guidance now, looking out to 2024 and incorporating your new leverage target of 2x and 2.5x. Maybe talk about uses of free cash flow, particularly around share buybacks, because you provided the commentary around the tuck-in deals. I think we can assume reasonable levels of CapEx, et cetera. But just trying to get a better feel for what you're thinking about and what's included in the multiyear outlook around buybacks, just to kind of make the math work here, I think, would be helpful.
Okay. Let me start with the top line.
You basically revealed our Investor Day agenda, Kevin. So we might answer some, but not all. How about that?
That's entirely fair. Entirely fair.
Let me give you my perspective on high single-digit growth. So we have been delivering and articulating approximately 6% organic growth. When we exit the retail business, that number will move to 7%. And it's a high degree of confidence because we've been delivering that number. You also know that we recently hired Kate Kotowski and Jeff Johnson, and there's 2 prongs is we're scaling up so that we can make real investments in future growth around digital. Kate has some experience there. And then to your question about EBITDA margin expansion, we think that Jeff will help us enhance and improve our operational efficiency across the operation to give us that step-up in EBITDA margin enhancement. So that's really the high-level approach and why we think it's there. And of course, we're going to have to invest in growth. And we've invested in the mobile app and some of the websites, we're going to have to accelerate that investment to push it to the higher end of the single digits.
And on the leverage that you asked, it really is a function that we have a small amount of debt that we can repay on our cash flow revolver some financing leases. But we don't have a vast amount of debt. So there is paying off that debt, but it's predominantly it's the leverage of the increased EBITDA that drops our leverage ratio versus EBITDA down. So that is how we're getting to below 2.5x by 2024 on the leverage.
Your next question comes from Derek Lessard with TD Securities.
Maybe I just wanted to hit on the -- I guess what segment -- sorry, let me just rephrase that because, again, thanks for giving us the revenue impact from the exiting of those business. I was just wondering maybe if you could break it down a little bit further. In a couple of areas, which segment do we find those revenues? And number two, what's the split, I guess, between North America and the rest of the world? And thirdly, when do you expect to be fully exited of that business?
Yes. So that's the retail question, sure.
Yes. So first off, if you look on our channel segment reporting, it's other water. And really, the other water is just retail water and it's located in North America and Israel is where -- yes, in Israel, we have the #1 premium retail brand. So it's a very good, very profitable brand. Here, when you look at the business that we're exiting, it's about $140 million. I -- that was my prepared remarks. And we've talked about this business so previously. It's basically 0 EBITDA or basically 0 EBITDA business that we've run for fixed cost leverage. So that's the EBITDA effect. And it really is just removing basically 0 EBITDA type revenues, what's improving our margin. A couple of other points on that. I'm not sure if Tom said in his prepared remarks, but this will eliminate 400 million single plastic bottles that we're selling from our portfolio with us working with the retailers to replace it. With our exchange machines with our refill machines. So it's really an effort to remove single-use plastics from our -- from our overall product line. So that's the key part of it.And the last thing, I know I'll get an inflation question at one point that might have so knock it out. The biggest inflationary pressures we've seen is part of this business, too, where yes, we have resin that we're buying. We have freight that we're shipping. And we've seen about 6 million of inflationary type headwinds within this business on top of everything this year. So it will also be eliminated a part of the business that does have the commodity type movement. And then you have to put the pricing through the large retailers, which, as we all know, takes much longer than our ability to take pricing across the other 2.7 million or most customers.
That's very helpful, Jay. And maybe just one last one for me. In terms of the Delta variant impact, I was just wondering how it impacted you guys in terms of quit rates or short-term quit rates and maybe customer service complaints.
Yes. So we would have obviously not serviced to our normal level, which would drive incremental cost to the call center. We deployed every available human to us to resolve for that. Encouragingly, is our customers can be very forgiving when we respond to them that we're taking efforts to address the issue and evidenced by that reduction in the pool of quit rate. So the 240 basis points lower than the same time a year ago is indicative that we still made good progress retaining the customers, and we responded appropriately or as best we could in -- what was a pretty wild 6 or 8 weeks.
Including the CFO, knocking on your door with a 5-gallon jug, thanking them for being a customer.
Next question comes from John Zamparo with CIBC.
I also hope to see a picture of Jay driving a truck at the Investor Day coming up.
They didn't give me a full truck. They just gave me a van as all they would trust me with John. Try to limit the downside.
Fair enough. I wanted to ask about the dispenser business. And I know there's going to be noise quarter-to-quarter, and it seems like tariffs have an impact here, but it's the second consecutive quarter we've seen a decline. Is there anything you can add on this business?
Well, you have a couple of things that have happened. Obviously, like everybody else, freight costs are higher, right? So we've seen significant inflation in the cost of the freight to get it here, which leads to price increases, which take us a while, obviously, to flush through because this is the retail segment. The current levels of ocean freight have abated a little, but they're still meaningfully higher than a year ago, or will be better in Q3 and moving into Q4 than in Q2 and early Q3. We have had delays in the timing of those shipments. But right now, we're in a pretty good position from an inventory perspective. So we -- my team has done a very good job managing when they get here, so that we believe will open in 2022 in very good position. As it relates to tariffs, we weren't given a window when they expired at the end of 2020. Tariffs have been in place since the first of the year. We now have the ability to request exemption from those tariffs that process ends on or about December 1 and then we'll await government decision. When we went through this process, the first time in, I want to say, 2016, we ultimately received the exemption. So we're cautiously optimistic, but we'll have to wait and see. Once that comes back, then we would expect that the expensive business to get back in shape and continue to grow. And even though it was choppy, I think we'll still sell something on the order of 800,000 coolers this year, which has still plenty of new users to the category that will service hopefully with our Water Direct Exchange in retail business.
And the one point you didn't mention, we did see last year some inventory loading by retailers as they were seeing these headwinds come. So secondly, when you look at the 1 million we showed last year. There was a little bit of pull forward of purchasing by the retailer. So that's given us a little bit of headwind on a year-over-year comparison this year also.
Okay. That's helpful. And then my follow-up is on the ESG side. And I think you're making really tangible efforts and progress on this front and the investment community is probably or should be well aware of it. But I'm wondering about it at the customer level. And are there ways that you're making customers aware of the efforts you're taking and the benefits? And ultimately, can that bring in more customers? Or do you view it as a retention tool? Just I would like to get your thoughts on the ESG efforts from a consumer's perspective.
Yes. I think it's a good point, John. We need to be better communicated to, I'll call, the 3 R's refill, reuse, recycle. And that's the real benefit of our large format bottles. And it should become a bigger part of our marketing customer, consumer communication. And I think you'll see us move further down that path in 2022. And then frankly, the exit of the retail business gives us the opportunity to reengage and open that communication with the customer, which once we're completely out of this all at midyear '22, you'll see us kick up that communication.
Your next question comes from Andrea Teixeira with JPMorgan.
And I hope you and your logistics team are well now. And Jay, there's a lot of the respect I guess the stock has a little bit over right now, right?
I'm wiped out that he was sweeping floors in Orange County. So let me knock it all the glory. He was out in the market, too.
So my question is on -- I think you alluded too, but I just want to make sure that we get all the pieces together. So your EBITDA margin for the fourth quarter kind of implies 20 to 21.5, so it's a big step from the prior year and could be even above the 3 quarter at 20 level, which we think it's probably the highest ever. So what do you think is driving the step-up in profitability, especially as, I guess, you I think labor and third-party rate also kind of takes -- continues to be elevated. Is that -- I mean, obviously, the retail water business exit is not until, as you said, mid next year, but there's some improvement that in the mix as you carry over. So anything we should be aware of any additional pricing or lag?
Yes. And, there we'll get a full quarter benefit of pricing. So we were very aggressive took pricing in Q3, but it wasn't in for the totality of Q3. It will be in for the totality of Q4 across pretty much all of our customer base. So we'll get the benefit of that. And then Jay referenced September revenue up 11%. We are enjoying good demand for our products into October, which will also give us the leverage from the volume down to the EBITDA margin.
Okay. No, that makes a lot of sense and everything falling into the quarter, which, by the way, is pretty unique for everyone else in CPG. So that's impressive.
It's the benefit of having a very diverse customer base where we have said we do have the ability to take pricing because our average customer bill is $50. We don't have the large, large retailers that have the ability to RFP, and that gives us the ability to take price, and we're taking it.
Your next question comes from Nick Modi with RBC Capital Markets.
This is Filippo Falorni on for Nick. One quick question on the labor issues. You mentioned clearly, things are getting better and already kind of returned to normal. But if you think a bit longer term about the potential longer-term impacts from COVID, have you seen any -- have you seen any difficulties finding employees given the rise of the gig economy and having more options for people to find alternative jobs. Is that something that you're thinking about longer term on the labor front?
Yes. In terms of the route labor force, we have taken appropriate steps market by market in terms of what our starting wages are. And that has always been based into our expectations. And we don't see huge challenges. That doesn't mean there is in a town somewhere in North America where there's a particular issue. But overall, we think we're in a pretty good spot in terms of our ability to fill and keep fill those routes subject to no future variance that causes these spikes. And then the other biggest area for us is in our call center. So we have competitively wages in our Lakeland facility. And frankly, the entire team is focused on retention, right? So part of this is once you can attract the people, when we get them, what are we doing all the right things to keep them. And it's a pretty big focus of the company to onboard people appropriately and to make them feel part of the team, so that they'll stay with us.
Got it. That makes sense. And yes, on the ESG front, maybe you could give some matrix how the exit of the North America bottle water business helps improve the ESG profile of your company from an emission standpoint. And longer term, you've made a lot of progress on the topic. What other initiatives are you thinking about going forward?
So there's -- I'll give you one of the other initiatives, and then I'll hand the larger retail question over to Jay. You would have read last quarter, we invested in a company called Sipple. Sipple is a refill vending machine that will then containers of 1 meter or less. So we actually believe it will be a single-use replacement. We're currently invested only started in the U.K. We have global rights for that. It will be part of our growth story over the course of the next 3 years, which we think it is a real environmentally friendly solution with pretty good growth potential.
And when you look on at ESG, I mean, you look, we -- our primary product is about the most environmentally sensitive packaging we can use. We pick it back up, we sanitize it, we will use up to 50x. So that is it. But when you look at our portfolio, it was this one way, small part of our business, but we were still utilizing over 400 million single-use containers. And that's going to go away. So you look at greenhouse gas by the end of this year, we will be carbon neutral globally and work -- good carbon credits, but working on reducing no matter greenhouse gas we generate through our routes. We're a member of Alliance of water stewardship, and we are really focused on really taking care of the aquifer and water sources. This will get us to the same place on packaging because this one-way package was the one area that didn't meet our strategy. So you really look at the E part of ESG, this is really the final step we needed to really be on every one of those 3 categories really moving in the right direction as a company.
Your next question comes from Derek Dley with Canaccord Genuity.
Congrats on a strong quarter and obviously good guide near and long term. So one of the things I want to talk about was just the acquisition. So you mentioned that you're going to continue to focus on the $40 million to $60 million in tuck-ins. Can you just talk about what you're seeing in terms of multiples? I know you guys have kind of given a range in the past. Are the multiples still in that range on the private side? And is there anything larger or maybe medium-sized out there? And finally, will these be predominantly focused in the U.S?
Generally speaking, the multiples are about the same as historically. The size of the ones we're doing might be a little bit bigger than average. So I think our average over the year is like $2.5 million. It might be $3.5 million, if you will, maybe a little bit bigger than that. So it's a little bit more scale. You'll see a number in North America early, and the Get Fresh was a good sized acquisition in Poland. So we've got some work to do to make sure that we integrate that business properly. That was something on the order of 20,000 customers, if I remember correctly. We think there's a good runway. And hence, we've said the $40 million to $60 million. So we think there's still plenty in our sweet spot, if you will, at reasonable multiples historically. And then there are a few bigger ones out there. We'll wait and see how they develop over time.
Okay. And then, I guess, just switching gears a little bit. You guys -- you mentioned some cost inflation you're seeing in terms of labor in terms of shipping. Wondering what you're seeing just in terms of packaging, I guess, on the plastic side. I mean is this something that you can pretty easily price through or pass the price on? Or how are you dealing that?
Yes, it's a good question. If you think about our business, excluding this retail business, that there is a little bit of inflation in the cost of either a polycarbonate or PET 5-gallon container. But because we use them 50x, it's really not a very large impact. And that becomes the largest material that we buy, frankly, at the end of the day. So as we exit retail, we'll be less stressed by cost inflation, resin and fuel as it relates to packaging. We won't buy any corrugated, we'll buy a lot less shrink wrap all of that will be some hidden benefits that are environmentally friendly, not just the plastic bottle.
Yes, that makes sense. Okay. And then last one for me, just in terms of the residential business in Europe. I know it's still early days, but you referenced that 24% year-over-year growth. How are you viewing the performance of that business in the early days? And is it still sort of located in a select group of larger cities?
Yes. We're quite pleased with the performance of the residential business. We're now -- I think the last site we stood up was in Russia, and we're quite pleased with the early days in Russia. We would have sites now up across Europe. So everyone has a basic transactional side. It's an area that we need to develop over time. It's one of the growth areas as we enhance the digital experience. But we're quite pleased with the growth. It tends to be a little bit more Eastern Europe at this point. But we're very happy with where we think this -- where this can grow. And it's had pretty significant growth in calendar '21.
Your next question comes from Daniel Moore with CJS Securities.
You covered a lot of ground. So maybe just talk a little bit about the cadence of the reopening in Europe on the commercial side of the business. How does that starting to come back through the quarter and early into Q4?
Yes. I think that, that business has really essentially flattened out in terms of return. So our operating approach now is this is the new normal. And firms, remember that, that customer base for us is more large commercial, larger offices. It's a balance of work from home and when the European businesses reopen. So it's been slow to recover, and it's been, frankly, pretty static over the last month. Hence, the reason why our focus in growth on residential becomes more important as one we diversify the customer base. But as those consumers are spending as much time at home, that this is an important point for us to drive growth across the continent over time.
Perfect. And then lastly, on the capital allocation front, good color and appreciated. This quarter indicate a little bit of a desire to step up or continue to step up on the share repurchase front or just being opportunistic? And number two, the leverage ratio, simple math, so pretty straightforward. But does that preclude you from exploring larger strategic M&A? Or is that just assuming it doesn't happen?
I think you answered your own question on the share buyback. It was opportunistic. And on the dips, we did buy up a good portion of our stock from 0.8 million shares in the quarter. So that was the purpose. And we went through the majority of what's been allocated to us from the Board. So that covers that.And on the balance sheet, we do have a -- we do have a good balance sheet. We have the ability to do larger scale transactions if needed. But in the interim, our goal is to grow the business, grow EBITDA. And I talked earlier about the deleveraging that will naturally happen with the organic growth we're targeting over the next 3 years.
Your next question comes from Pavel Molchanov with Raymond James.
Let me zoom in on Europe as well. Cases in Europe, in contrast to the U.S. are close to 50% in the last 30 days in U.K., Germany. And I think particularly Eastern Europe are really in a fourth or fifth wave now. Is that having the analogous impact on your route operations that you discussed vis-a-vis the United States a little bit earlier?
I think the way to think about it since it's the fourth or fifth wave, it's pretty normal course, right? So we don't have the impact on route operations or on the associates in Europe that we've experienced in North America. So we haven't had a big spike of folks that got infected. And as when we track it every week by market, so we know where people have been negatively impacted and we just don't see it on that side.
Okay. Good to hear. Sipple, you mentioned in the original Sipple announcement that you would be deploying their mini kiosks across your European asset base and also bringing it across the Atlantic to North America. Do you have a timetable in mind for deploying this technology across your asset base?
Yes. I'll tell you exactly where we are today is finding the appropriate manufacturing in North America and Europe so that we can scale, right? So we're in active discussions with solutions. So that's kind of -- we have the technology. Now we have to scale it. I don't want to ship it around the world, so I'd rather produce it in the continent, if you will based on the last year. So that's active in process right now. And that will dictate when we can actually plug them in and turn them on. But we would expect to deploy some before the year was out in '22.
Your next question comes from George Doumet with Scotiabank.
I want to talk a little bit about pricing. Maybe if you can talk to the quantum of the price increases that we took for the Q3 quarter. And maybe looking at your longer-term algorithm of high single digits. Is that we're going to be 1/3 of that? Or do you expect maybe pricing to maybe be a little bit higher than what we've historically taken?
In the quarter, we had 6% increase in pricing.
Water Direct and Exchange.
Water Direct and Exchange, the bulk of our business. So we're quite pleased with that. And then we expect that to continue, obviously, as we've implemented this. The longer-term algorithm is it's always going to be a piece of how many customers we get and their contribution from a volume perspective. We've been very disciplined on regular price increases. So that will be part and parcel to our growth story. Customer retention is a part of our growth story. So it's not just bringing new ones in, but keeping the ones you have, which are quite valuable to us.
I mean if you look at that part of our business that Tom talked about 10% in the quarter, about a little over 1% was customer growth, a little over 2% was volume growth and then the 6% with pricing that rounds up to the 10%. We feel with investment behind growth, we can increase the amount of growth from customers, consumption will continue to grow. And I think we are demonstrating the ability to take price within our customer base. So those are the 3 problems we're focused on.
Okay. Great. Any shifting gears to Israel, which has been more immune than most of our jurisdictions. Just wondering what have you seen there in terms of volume per customer? Has that at all increased? Has that been stable in the last couple of months?
Yes. The business has been quite stable and growing. Our -- the retail side of our business, as Jay referenced, we're the #1 brand in the country. So we are seeing increased volume and consumption there. Our home and office or Water Direct business has been quite solid and experienced pretty significant growth in this calendar year. And their return from COVID has been different than others, right, in terms of timing. So they've been back a little bit longer, although they did have a little bit of a spike, it was short-lived compared to what we saw with the Delta here in the U.S.
Okay. Just one last one, if I may. It seems that the cadence of our bolt-on M&A has been well above kind of the 40 to 60, at least on a run rate basis lately. I'm just wondering, is that something that you guys can maybe maintain and maybe end up having a higher contribution, if you look at it from the 12-month period?
I mean, George, I mean the key is if you look at the years where we've gone above the 60, it's where we've probably done a $30 million or $40 million larger tight tuck-in. I mean, Mountain Valley would be an example of it, and that's what put us at the higher end. To the extent we continue to do the -- as Tom said, average $2.5 million, $3 million, maybe some bigger, some little, I think the range is the right to go, but we do continue to look for larger scale ones. I'm not talking strategic, but at the $30 million, $40 million, $50 million. those will obviously get us above the range. But if we continue with the average that we talk about 40 to 60 is the right way to look at it.
There are no further questions at this time. Please proceed.
This concludes Primo's third quarter results call. Thank you all for attending.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.