Advantage Solutions Inc.

Good afternoon and welcome to Advantage Solutions' third quarter 2021 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'd like to turn the conference over to Dan Riff, Chief Investor Relations and Strategy Officer for Advantage. Thank you. You may begin.

Thank you, Operator. Thank you, everyone, for joining us on Advantage Solutions' 2021 Third Quarter Earnings Conference Call. On the call with me today are Tanya Domeyer, Chief Executive Officer, Brian Stevens, Chief Financial Officer and Chief Operating Officer, Jill Griffin, President and Chief Commercial Officer, and Dan Morrison, our Senior Vice President of Finance and Operations. 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 operation, 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 httpsadvantagesolutions.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 our website. And now, I'd like to turn the call over to Tanya Domeyer.

Thanks, Dan. Good afternoon, everyone. As I did on our first few calls, I'm going to start by framing the Advantage Solutions business. We're the leading provider of outsourced sales and marketing solutions to consumer goods, companies, and retailers. We have a strong platform of competitively advantaged services like headquarter sales, retail merchandising, in-store sampling, digital commerce, and shopper marketing. And for brands and retailers of all sizes, our job is to help them get the right products on the shelf, whether it's physical or digital, and into the hands of consumers, however they shop. Creating value on this platform is simple, but it's not easy. And at the most fundamental level, we're a trusted partner and problem solver. We help our clients sell more while spending less. We operate very efficiently, providing fuel for growth. We reinvest in attractive returns, both organically and through tech and acquisitions. And as we deliver value, our platform compounds over time, growing profits at more than two and a half times the pace of the S&P. I'm so grateful to our associates for the work that they do in the office and in the field. And I want to take this opportunity to publicly thank them. They're providing essential high return services helping consumer goods companies and retailers navigate out of this pandemic better, cheaper, and faster. Once I conclude my remarks, I'll turn things over to Brian to discuss our financial results, and then after that, we'll open the call for questions. I'll jump right into today's update. As we look ahead, Advantage remains well-positioned in a very dynamic operating environment. Demand for our essential services remains high, as we help our partners navigate through unprecedented change in both brick and mortar and e-commerce. We're investing to stand up tens of thousands of associates in a still choppy labor market to help our clients and customers navigate unchartered waters and solve unprecedented challenges every single day. And we're being disciplined in realizing price to offset wage inflation in our most labor intensive services with more to come on that later. Times like this with lots of change, as I've mentioned before, are when our compounding platform really shines. In fact, there may not be a better time to be a low cost scaled provider of essential services that extend all the way to the shelf. I'm very proud of our team. They're helping our brand and our retail partners work through near record inflation. supply and demand imbalances, fragile global supply chains, and a rapidly shifting marketing mix. The path ahead may not be smooth in our markets, but we've got an amazing team and services deployed to win over the long term. Drilling down a bit, we had healthy performance in our third quarter in the face of a dynamic and difficult operating environment. And this steady delivery year-to-date gives us the confidence to affirm our upwardly revised 2021 adjusted EBITDA guidance of $520 to $530 million. We continue to see recovery in services most impacted by COVID, particularly in-store sampling where events were up approximately 13% from the second quarter of this year. Elevated at-home demand continues to benefit our sales segment. supported by steady volume and rising price trends relative to pre-COVID levels. Our higher growth and higher margin digital services continue to deliver strong results, annualizing to nearly a quarter of our profits and providing a strong set of solutions to brands and partners in an omni-channel world post-COVID. As we bring sampling back to stores and we scale further in retail merchandising, we're standing up tens of thousands of new associates. This requires a significant investment in our talent and our workforce that will continue as we return to full operation over the coming quarter. In addition to our workforce investment, we're also investing through the P&L in service innovation and a unique trade promotion optimization offering. We're completing tuck-in acquisitions that add capabilities at attractive returns, We have a robust pipeline of new business opportunities as we come out of the pandemic, and we're being disciplined about taking price in a majority of our businesses that are most impacted by wage inflation with hikes of mid to high single digits. We're not yet back to normal, but we're navigating the path to a new normal quite well. Turning to an update on our financial performance. Here are some highlights from the recently completed third quarter. The business continues to deliver solid financials as the world reopens and we work through what we hope are the final innings of the pandemic. Revenue continued to recover nicely in the quarter, growing 18% year over year, as in-store sampling continues to build back in our marketing segment. As we anticipated, Adjusted EBITDA declined modestly, down 2% year-over-year on continued upfront investment in recruiting to build back our workforce in COVID-impacted operations, mixed-related declines, and workforce investments in the sales segment. Catching quickly on the segment, revenue growth remained strong in our sales segment, up 10% year-over-year, driven by healthy rebounds in the COVID-impacted international business, and growth in retail merchandising services. Offsetting some of our growth, we had modest declines in headquarter sales revenue. It's worth noting, however, that while headquarter services are moderating from COVID peaks, they do remain above 2019 pre-COVID levels. The sales segment did see a forecasted year-on-year EBITDA decline down 7%. This was driven primarily by upfront costs to ramp new business wins lower margin revenue mix from the type of work that we've won, and continued investment in our merchandising workforce. To elaborate on the mix component, the expected declines in headquarters services against last year's elevated COVID levels came at high decremental margins, while the addition of retail merchandising and international revenue came at lower incremental margins. Moving to our marketing segment, The revenue rebound continued up over 37% versus 2020 as the steady return of in-store product demonstration at our largest sampling client delighted consumers and our digital services continue to have significant adoption. Marketing also saw solid EBITDA growth in the quarter, up 12% year over year. This was primarily driven by healthy growth in digital, offsetting significant investment in some of our in-store sampling services to acquire and onboard talent, offsetting some supply chain challenges with single-serve sample availability, and the roll-off of high-margin prior-year COVID-related services for retailers when sampling was dormant. As we sit here today, with just over a half a quarter to go in the 2021 calendar year, In the sales segment, we continue to see solid consumption patterns in the sales segment as baseline volume remains elevated from pre-COVID levels. We expect this to continue to some degree with hybrid working as a trend, but expect that volumes will continue to normalize further as more people go back to work and school in the coming quarters. We're also seeing consumer goods supply chain struggle, hurting some clients' ability to get products to stores. Offsetting these headwinds, we're helping manufacturers navigate a more dynamic pricing environment to offset commodity and wage inflation. This CPG pricing tailwind directly benefits our headquarter sales business whose commission grow with client business. In the marketing segment, In-store product demonstration and sampling continues to receive strong support in our rollout, and shoppers are very pleased to see the events that they've missed. Brands are eager to bring innovation and product news to market, and demand for events continues to grow. As we've noted, standing up teams of tens of thousands of trained associates, something that we're uniquely good at, doesn't happen overnight, and it's complex and costly. particularly in today's tough talent market. We continue to invest to recruit and to train and to retain, particularly in the in-store sampling services that we're bringing back to life. We expect that this will continue through the balance of 2021 and into next year. As you can see, our full-year guidance anticipates a solid inflection in Q4 performance, both against depressed prior year comps and a Q3 that was squeezed a bit by mixed drag and temporary reinvestment. Key drivers of our expected robust Q4 are healthy pricing trends in our headquarter sales services, continued outperformance in digital services and solutions, flow through of pricing to offset wage inflation, and steady recovering and sampling as we continue to staff up there to absorb our fixed costs and recruiting investments. On the COVID front, we're watching things very closely. We continue to expect the pandemic's disruption to subside as the state of health improves, but we remain nimble and prepared for a wider than normal range of outcomes. As noted earlier, we are affirming our 2021 adjusted EBITDA guidance of $520 to $530 million As many of you know, we plan cautiously and execute relentlessly. Given solid organic performance and tuck-in acquisitions year-to-date, we're comfortable in our outlook with just a few weeks to go and believe we're positioned well to deliver against this range in a wide set of macro scenarios, ably navigating meaningful inflation and labor and supply chain disruptions that no one could have forecast. Before I turn it over to Brian for more details on the financials, I do want to highlight the share repurchase authorization we communicated in a separate release after the close today. We continue to believe our heavily discounted share price is meaningfully disconnected from our stable fundamentals and healthy outlook. Given that, we'll be opportunistic in buying back the business that we know best, our own. The $100 million authorization will be utilized when two basic conditions are met. Shares trade at meaningful discount to our conservative estimate of intrinsic value, and share repurchase compared favorably to alternative uses of capital deployment, including our highly valued accretive M&A program. With that, I'll turn it over to Brian.