Advantage Solutions Inc.

Good afternoon, and welcome to Advantage Solutions' fourth quarter and full year 2020 earnings conference call. Today's call is being recorded, and we have allocated one hour for prepared remarks and Q&A. At this time, I would like to turn the call over to Mr. Dan Morrison, Senior Vice President of Finance and Operations for Advantage. Thank you. You may begin.

Thank you, Operator. Thank you for joining us on Advantage Solutions' fiscal year 2020 fourth quarter and full year earnings conference call. On the call today are Tanya Domeyer, Chief Executive Officer, Brian Stevens, Chief Financial Officer and Chief Operating Officer, and Dan Riff, our new Chief Investor Relations and Strategy Officer. During this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events and those described in the forward-looking statements. Forward-looking statements are based on the company's current expectations and are subject to inherent uncertainties, risks, and assumptions that are difficult to predict. Actual outcomes and results could differ materially due to a number of factors, including those described more fully in the sections titled Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in the company's filings with the Securities and Exchange Commission. All forward-looking statements are expressly qualified in their entirety by such factors. The company does not undertake any duty to update any forward-looking statement except as required by law. Please note management's remarks today will highlight certain non-GAAP financial measures. Our earnings release issued earlier today presents reconciliations of these non-GAAP financial measures to the most comparable GAAP numbers, which can be found on the Investors section of our website at advantagesolutions.net. The company has also prepared presentation slides, which are posted on ADVANTAGE's investor relations website. You may want to refer to the slides during today's call. This call is being webcast and a recording of this call will also be available on the website. And now, I'd like to turn the call over to Tanya Dillmeyer.

Thanks, Dan. Hello, everyone. Since we're relatively new to public equity markets, I'll do a quick introduction. I'm Tanya Domeyer, and I've been with Advantage for over 30 years, and I've had the pleasure of serving as CEO since 2013. I'd like to start this call by thanking all of our associates who work tirelessly at home and in stores to help keep our brand and retailer partners' businesses running safely and smoothly throughout the COVID-19 pandemic. I'm so proud of our team's work. to help communities in need during these trying times by making sure that food and essential products from our clients are available to consumers both in-store and online. We're very excited about our journey as a public operating company after our successful merger with Conyers Part 2 in October of 2020. The team is poised to help our clients navigate COVID recovery through 2021 and beyond, and I'd like to take a minute up front to share a little bit more about the business that you own. As an advantage shareholder, you own a stake in the leading provider of outsourced solutions to consumer goods companies and retailers. We have a strong platform of competitively advantaged sales and marketing services built over multiple decades. Business-critical services like headquarters sales, retail merchandising, in-store sampling, digital commerce, and shopper marketing. For brands and retailers of all sizes, we help them get the right products on the shelf, whether physical or digital, and into the hands of consumers, however consumers choose to shop. We innovate in partnership with our clients, solving problems to boost both efficiency and effectiveness. And creating value on this platform is simple, but it's not easy. At the most fundamental level, we sit at the nexus of consumer goods companies and retailers, and we're a trusted partner to both. We help our clients sell more while spending less. We make them more effective, and we also make them more efficient. We win by providing best-in-class services every single day and by innovating on a nimble operating platform, which we'll talk about today. We drive productivity to provide fuel for reinvestment and growth. And simply put, we're built to do it better and cheaper and faster. At our leading scale, this stable model yields solid EBITDA margins, which we convert into abundant free cash flow. We then reinvest that free cash flow at very attractive incremental returns and drive growth by selling more asset-like core services to our existing clients, recruiting new clients, and entering adjacent spaces where we have the right to win, further extending and widening our competitive moat. Through this model, our business compounds over time, delivering compound growth for well over a decade at two times our underlying end market organically and greater than three times in total. We're proud of that. As with all compounding gains, we're working hard to keep at it for the long term. We've run a playbook that has enabled us to execute on this for a very long period of time. Now let's hop into the substance of today's update. Once I conclude my remarks on the business, I'll turn things over to Brian Stevens, and he'll discuss our financial results. And after that, we'll open up the call for questions. there is no doubt that 2020 was a challenging year for everyone. The pandemic put us all to the test. Our team is resilient, our team is innovative, and our team is action oriented, and we rose to the occasion passing with flying colors. COVID-19 presented unique challenges for our business. Across our portfolio of services, we had both winners and losers during the pandemic. On one hand, Large portions of our operations related to in-store sampling, food service, and our international joint venture experienced temporary headwinds from the suspension of activities or virus-related closures, leading to short-term declines in 2020. Those were the COVID losers. On the other hand, our core headquarters sales and merchandising teams providing services in traditional, and e-commerce channels have never been busier as we respond to consumers' elevated stay-at-home consumption. These were the COVID winners, and we expect them to sustain elevated demand levels well into 2021 as many of us continue to work from home. While portions of our business continue to experience near-term COVID-related headwinds, we expect to emerge from COVID a bigger, stronger business. We've served our clients well through this pandemic, and we've reinforced their trust in us. And we've scaled nascent e-commerce services that will thrive post-COVID. The timing of an exact recovery is still tough to know with great certainty, but we believe the business will continue to improve throughout the year and will benefit as COVID-impacted businesses are restored to health as virus concerns and restrictions ease likely in the second half of 2021. One thing is clear, and that's that we've never been more important and valuable partners to our brands and our retailers than we are today. Our solutions play an essential role in the network that gets good to consumers. Our team stepped up for clients with quality execution and new service innovation to meet very unique challenges presented by this virus. This will pay dividends over time. Despite the pandemic, we accomplished a whole lot in 2020. We successfully completed our merger with Conyers Part 2 and refinanced our debt on October 28th of 2020. We met or exceeded the expectations we had for the full year, and we continue to make progress on a recovery in most COVID-19 operations. Our business trends were in line with expectations in the sales segment, Our teams are executing very well and capitalizing on tailwinds from increased at-home consumption and the demand for our critical services. Our marketing segment revenues and earnings trends continue to improve from the second quarter lows of COVID as we continue bringing back in-store sampling events in a safe and measured way with our retail partners. We also continue to see growth and adoption of digital and e-commerce sampling programs. Businesses developed in early stages with clients in 2019 catapulted forward during COVID and should compound growth at above corporate average margins from here. So as we sit here today, more than 10 weeks into the first quarter, a couple of things that we're seeing that I think are of note. First, we continue to see strong consumption patterns in the sales segment. as the baseline remains elevated from pre-COVID levels with consumers working and consuming more at home. We expect, however, the late March and early April pantry loading that we saw last year will create a tough comp for the next couple of months. That said, we still believe there'll be net benefit for the first quarter on a year-over-year basis as at-home consumption remains elevated across consumer staples. While we're still being measured and flexible as we resume in-store sampling with retailers in the marketing segment, we continue to receive strong support from our retail partners in our rollout and consumers are pleased to see events that they've missed. Brands are eager to invest to drive sales and despite still being limited in activity, we've seen event counts continue to grow. Event count growth so far in the first quarter is exceeding our initial expectations. Things feel to be headed in the right direction on the virus front, but if there's one thing that this pandemic has reminded all of us, it's that we can't be certain. Therefore, we will remain disciplined and flexible in how we're managing the business as we make our way to the light at the end of this tunnel. We expect that the pandemic disruption will continue over the coming quarters but begin to subside in the second half as the state of health improves. Our planning stance that we put into place as we were preparing to combine with Conyers SAR assumed that the pandemic continued through the first half of 2021 and were prepared for potentially choppy months ahead. We're confident that based on the state of the business and the flexibility of our model, we can achieve better than forecasted EBITDA growth in 2021. We're raising our 2021 adjusted EBITDA outlook from the $515 million that we shared last October to $515 to $525 million. That represents very healthy mid to high single-digit EBITDA growth year over year, and this takes us above the pre-COVID 2019 EBITDA of $504 million. This is particularly impressive in light of our 2021 assumption that the in-store sampling business will remain temporarily restrained by COVID for the first half of the year before building back towards pre-COVID levels in the second half of 2021. This would leave growth from an embedded recovery in the marketing business in our back pocket as we head into 2022, where we should benefit from a full year of in-store sampling, which would support above normal growth next year as well. Last but not least, we continue to execute well against the value creation strategies that we shared with investors as part of our merger, finding savings and reinvesting in talent, in technology, and in capabilities that allow us to be a better, more valuable partner to clients. I'll quickly touch on some of the highlights from 2020. Our talented and nimble operating platform allowed us to pivot in response to COVID-19 headwinds and deliver results that we're proud of for all key stakeholders, starting with clients. Our extraordinary associates helped ensure that our clients' products were available to communities online and safely in-store throughout the pandemic. In addition, our teams launched and scaled innovation to help meet new needs of brands and retailers that were brought about by this pandemic. We repurposed our associates from our suspended in-store sampling operations to help retailers with urgent and critical needs such as in-store sanitation and pick and pack for online grocery pickup orders, for example. Nascent offerings such as e-commerce sampling and virtual demos scaled quickly to help brands and retailers surprise and delight consumers in new and safe ways. Turning to our associates for a minute, we continue to invest in training and promotion and hiring. We supported members of the Advantage family with the charity fund that we created and funded to help our associates in need. We provided additional support for our frontline associates who continued to go into the stores on behalf of brands and retailers to make sure that essentials were available to communities in need. These were our real heroes. And finally, our Diversity, Equity, and Inclusion Board continued to make progress launching eight new employee resource groups for our associates that span important underrepresented ethnicity, gender, and affinity groups. While there's always more work to do in securing great talent, we're really pleased with the progress that we made in 2020. Finally, for our owners, we managed through the pandemic temporary headwinds with discipline, delivering only a 3% decline in adjusted EBITDA despite revenues being down 17% as a result of COVID. We strengthened our balance sheet as part of our merger with Pioneers Part II, reducing year-end net leverage to four times fiscal year 2020 adjusted EBITDA of $487 million, an earnings number temporarily depressed from the pandemic. And we reduced cash interest from over $200 million in 2019, to approximately $135 million a year on a pro forma basis after giving full year effect to the refinancing transaction that we completed in the fourth quarter of last year. Now, I'll quickly review our actual performance in 2020 versus the 2020 outlook that we provided on our earnings call last year. We met or exceeded the ranges we previously communicated for our fiscal year 2020 outlook. Revenue growth closed the year down 17% in the range that we previously provided of down 19% to down 16. Adjusted EBITDA closed the year at $487 million, above the range we previously provided of $480 million to $485 million. The outperformance was largely driven by better than expected results in the marketing segment. Sales segment results were in line with expectations. And net leverage closed the year at four times, slightly better than the 4.2 times that we previously provided. As I mentioned a minute ago, and Brian will elaborate on shortly, we expect a better fiscal year 2021, and we're raising our adjusted EBITDA outlook to a range of 515 to 525 million from the previously communicated 515 million. The increase is really driven by three key factors. First, our confidence that the business that grew during COVID will remain relatively strong. Second, our belief that business harmed by COVID will continue steady recovery. And third, continued cost discipline across our business. This range of mid to high single digit profit growth in 2021 demonstrates the strength of our compounding platform. Given the continued uncertainty around the timing and shape of a COVID reopening, we won't be providing 2021 revenue guidance at this time, and we want to be very open about why. Put simply, one of our largest and least profitable business units has the widest range of COVID recovery outcomes for the year because the revenue line is impacted by non-economic pass-through associated with product samples depending on the types of activity that we're performing. So our 2021 revenue has a lot of non-economic unknowables that we're reluctant to apply false precision to. More specifically, in-person sampling events have a lot of pass-through revenue from the products that we purchase to sample in-store. And recovery in this event type is going to be driven by the state of health and policy, which is going to be influenced by variables like vaccination rates, the prevalence of new COVID variants, and other assumptions that are just too hard for us to forecast. Importantly, this business drives a wide range of revenue outcomes without necessarily driving wider EBITDA ranges. So we've decided not to guess on revenue for now. That said, we're very comfortable with the visibility and the control that we have over profits, and we'll provide as much color as we can about the return of demos and sampling and the broader COVID recovery from our unique vantage point at the nexus of CPG and retailers. Turning to the fourth quarter. When you look at the numbers for the fourth quarter, you can see that the continued sequential recovery we spoke about on the third quarter call continued in the fourth quarter. Recovery from the pandemic-driven lows continued in both segments. The sales segment continues to be a net beneficiary during the pandemic, while the marketing segment continues to be faced with temporary COVID headwinds, primarily in the in-store sampling business. Revenues of $850 million for the fourth quarter of 2020 representing sequential growth of approximately 8% on a quarter-over-quarter basis and improvement in the year-over-year decline versus the second and the third quarters, going from 30% down against prior year in the second quarter to only 16% down in the fourth. The sequential revenue improvement in the fourth quarter was in both the sales and the marketing segments. In our sales segment, we continue to see strengths in our core headquarters sales and merchandising services in both traditional and e-commerce channels where we're benefiting from in-home consumption. The business continues to trend favorably versus prior year. We continue to see a slow recovery in the food service and our international businesses both improving versus second quarter lows. However, these businesses remain meaningfully below pre-COVID levels and are unlikely to return to full operation until COVID-related policy restrictions affecting in-person dining in the United States and activities at retail locations in Europe ease. In our marketing segment, momentum was driven by growth in our digital marketing business and the continued progress our teams are making on the relaunch of in-store sampling activity with some of our important retailer accounts. As many of you know from previous calls, we temporarily suspended in-store sampling programs in partnership with our retailer clients in March in response to the pandemic. We began to bring those programs back to stores in the third quarter and actively continued to build in the fourth quarter. Over the last few months, we've seen an eagerness from retailers and shoppers and brands to bring in-person sampling back to stores. This, of course, is being done in a measured way that protects the health and safety of our associates and shoppers in store. And as we've mentioned on prior calls, the safety protocols that we put in place are critical. For example, where state of local health suggests heightened caution, we're managing the types of events that we're performing in-store to reduce risk, limiting activities to prepackaged samples, talking-only, and digital-type events. We'll flexibly manage event locations and event types as part of the natural evolution of a return to full operations post-COVID. Sampling event volume continues to build, increasing from approximately 20,000 events in April of 2020 to approximately 135,000 events in January of 2021. This is still meaningfully below the 400,000 events in January of last year, but this represents a significant rebound from the April lows and continued improvement from what we reported for September of last year. We expect that this trend will continue to improve over the course of 2021 likely recovering at a faster clip in the second half of the year once the vaccine is widely distributed and administered and the state of health and policy allows for more in-person events. We're excited to be back in-store sampling, and next time you're in a store, be sure to say hello to our team. There should be more of us there as the year progresses. Adjusted EBITDA was $133 million for the fourth quarter, representing an expected slight sequential decline of 3% on a quarter-over-quarter basis and a decline of only approximately 8% versus the fourth quarter of 2019. Favorable mix and disciplined cost management have helped us preserve earnings despite the tough revenue headwinds from the pandemic that persisted in the fourth quarter. This was slightly ahead of what we guided to on our last call. As we mentioned on our last call, we expected a sequential slowdown in the adjusted EBITDA in the fourth quarter. We were right, but the quarter turned out to be a little better than we expected. The slowdown in the fourth quarter related primarily to lower earnings in the sales segment driven by higher compensation and other personnel-related investments associated with launching a people-intensive piece of new business, and an increase in corporate expenses from higher year-end accruals, which gets allocated to the segment. We expect the new business investment to continue into the first quarter of 2021 but moderate over the balance of the year. I'm really pleased with how our teams have been able to manage costs with discipline during this difficult operating environment. This discipline should set up nicely for adjusted EBITDA growth as the business recovers. Finally, we remain very focused on our mission to create value for all stakeholders and continue to make progress against the strategies that we outlined in our previous investor conversation. And just to recap, there are three fundamental pillars of our strategy. First, We work hard to operate with excellence. This means that we deliver best-in-class services to our clients while driving productivity, reducing costs, and increasing margins over time. Second, we take a portion of the productivity savings that we generate and the ample free cash flow our business model produces, and we reinvest in services to widen our moats, accelerate innovation, and drive our growth. This includes service renovation where we invest in talent and technology and tools to improve the results and value that we deliver for clients in our existing services, as well as service innovation where we invest to add capabilities to create new and better solutions for brands and retailers' evolving needs. Attractive reinvestment opportunities exist both organically through share gains and service expansion and inorganically through M&A opportunities. And we will continue to use tuck-in acquisitions as a tool to add capability and value for clients where we can deploy capital at attractive prices and prospective returns. Third, we will nurture and protect our evolutionary culture. This enables us to build the business to suit clients' changing needs And it helps to ensure that we remain partners of choice for brands and retailers. And it allows us to be nimble and opportunistic when fortune presents itself with compelling propositions to build a better, more valuable advantage. These three pillars work harmoniously to create a virtuous cycle where one strengthens the other. I'm very excited about our future. buoyed by the stable underlying growth in the consumer goods and markets we serve, which has fueled our businesses compounding over time, we expect additional tailwinds over the next couple of years from a recovery from temporary COVID-19 softness in portions of our business tied to in-person shopping, accelerated omni-channel service adoption during COVID-19 that we believe likely sticks and continues to grow, like online grocery pickup and delivery sampling, and growth and adoption in our innovative digital and e-commerce solutions. Despite still not knowing the exact shape a recovery will take because of the uncertainty that remains around the virus vaccine rollout and timing of the economy reopening, we believe we're well positioned to win under multiple recovery scenarios. In addition, On the other side of the pandemic, our platform and strategy for compounding remains intact. Our nimble asset-light business affords us the flexibility to adapt and best position ourselves to weather near-term headwinds and capture long-term tailwinds as the recovery evolves. If we execute well like we have in prior decades, serving our clients well, prudently reinvesting in capabilities to meet clients' evolving needs, This is a formula that's proven itself worthy over time and will give us ample runway to create value for public shareholders over time. With that, I'll now turn it over to Brian to cover our fourth quarter and full year 2020 financial results and provide an update to our outlook for fiscal 2021.