Advantage Solutions Inc.

Good afternoon, and welcome to Advantage Solutions' fourth quarter and full year 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 Fourth Quarter Earnings Conference Call. On the call with me today are Tanya Dillmeyer, Chief Executive Officer, Brian Steven, 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 the website. And now I'd like to turn the call over to Tonya Domeyer.

Thanks, Dan. Good afternoon, everyone. As I'm sure most of you have seen by now, we put out a press release today announcing that after more than three decades at Advantage and almost 10 years as CEO, I've decided it's time for me to transition to an executive chair role and pass the baton to the next generation of amazing leadership at our company. The plan that we've shared is the result of multiple years of succession planning with the board. And I couldn't be more excited to share that Jill Griffin, our president and chief commercial officer will become our next CEO. Jill's a proven leader and she knows how to create value. She's a champion of Advantage culture and values. She joined Advantage 14 years ago and soon after replaced me. as the leader of our marketing division, which she quickly and competently grew into a multibillion-dollar business. She's been my partner in building the business for over a decade, and I can't think of a better person to write the next chapter of the Advantage story. It's been extremely rewarding to see her grow as a leader throughout her career, and with Jill at the helm, I am grateful knowing that I leave this business in better and more capable hands, and I am confident that under her leadership, the best is yet to come for Advantage. When I transition to the executive chair role on April 1st, I'll serve on the board of directors, and I will continue to support Jill and the team as they build the business. I won't take any more time to discuss this announcement on this call, but I hope that you'll read our press release, and I also hope that you'll read my letter to associates that's posted in the newsroom of our website if you'd like to learn more. So with that, we'll now turn to our results. As I did on our first few calls, I'm going to start just by framing the business. Advantage Solutions is a leading provider of outsourced sales and marketing solutions to consumer goods companies and retailers. Our data and our technology-driven services, which include headquarter sales and retail merchandising, in-store and online sampling, digital commerce, omnichannel marketing, retail media, and others help our brands and retailers of every size get their products into the hands of consumers wherever they shop. And we talk a lot about the fact that creating value on this platform is simple, but it's not easy. At the most fundamental level, we're a trusted partner and a problem solver. We help our clients sell more while they spend less. We operate efficiently, providing fuel for growth We reinvest at attractive returns, both organically and through tuck-in acquisitions, and we deliver value. And as we do that, our platform compounds over time. I'm so grateful to our associates for all the work that they do. And I just want to take this opportunity to publicly thank them. They are providing essential high return services helping our partners and helping consumer goods companies and retailers navigate out of this pandemic as we've talked about better and cheaper and faster. Once I conclude my remarks today, I'll turn things over to Brian to talk about our financial results. And after that, we'll open the call for questions. Now we'll jump into the results. And to start, I'll share highlights from Q4 and 2021 and a high-level outlook for 2022. So first, a few headlines from Q4's strong finish to a challenging year. In Q4, we delivered solid year-over-year revenue growth with healthy low double-digit incremental margins despite the headwinds from our service mix and wage increases. Our higher margin digital services grew at double-digit rates again, We saw continued recovery in businesses most impacted by COVID, with sampling events up 20% quarter on quarter. We saw sustained at-home consumer goods demand, and at the same time experienced the pain of our clients' supply chain challenges. We enjoyed a robust rebound in Europe, thanks to business reopening, but did see some tempering at quarter end and into 2022 tied to COVID. And we continued the difficult mission we've been discussing each quarter, investing heavily in recruiting and retention to stand up tens of thousands of new associates. Looking back over full year 2021, 2021 was not a normalizing post-COVID year that we all probably expected. Trends continued for longer in COVID-aided business, And rebounds were slower in our COVID-impacted businesses. Consumer purchase decisions were dictated as much by shelf availability as brand preference or price point. We saw supply chain hiccups stymie efforts to revive innovation pipelines. And shifting service mix, elevating recruiting costs, and rising wages meant we converted less of our revenue growth to EBITDA gains. In the context of this dynamic environment, the sales segment posted healthy revenue growth, but mix, recruiting, and wage costs all constrained EBITDA growth. And our marketing segment rebounded nicely on steady rebuild in sampling and sustained strength in digital services. And speaking of digital, our aggregate collection of digital services generated a high team share of revenue and nearly a quarter of advantage EBITDA. leveraging organic expertise and value accretive tech and acquisitions to help brands and retailers navigate an increasingly omnichannel world. In retail merchandising, headquarter for grocery and also food service, we saw some EBITDA pressure. International saw nice recovery and was a pocket of EBITDA strength. And in the end, we met our commitments, We delivered the adjusted EBITDA that we targeted. And we, like many others, underestimated a number of headwinds to include labor market disruption, inflation, and supply chain unrest. But we came through in the end, delivering on our commitments and navigating ably in real time. I really couldn't be more proud of the Advantage team for impressively posting very solid 2021 revenue and EBITDA results. And I'm very grateful for their work in evolving our business with nimble, scrappy bootstrapping. We have an ideal foundation as we look ahead to a new normal, and we plan to invest ambitiously and very thoughtfully to win. And with that as context, I'd like to drill down a bit deeper. Here are some financial highlights from the recently completed fourth quarter. Revenue continued to grow solidly in the quarter, up 21% year on year, driven by outsized growth in retail merchandising, continued outperformance in digital, and ramping recovery in sampling and demonstration. And as our full year guidance implied, Q4 adjusted EBITDA inflected nicely, growing 16% year over year despite the mixed headwinds and despite the investments in labor and wages, as I mentioned earlier. Touching quickly on the segments in Q4, revenue growth remains strong in our sales segment, up 15% on year, driven by healthy rebounds in the COVID-impacted international business, and also in growth in retail merchandising services, and then offsetting some of our robust revenue growth, we had a decline in food service. Our sales segment EBITDA grew 5%, as lower variable compensation expense and strength in international more than offset mix and labor headwinds in our headquarter retailer services and challenging defermental margins in food service. Moving to our marketing segment, the revenue rebound continued up 34% versus 2020 as in-store product demonstration at our largest sampling client ramped up as quickly as we could staff demonstration teams. and our digital services continued to outpace robust e-commerce and market growth. Marketing also saw solid EBITDA growth and operating leverage in the quarter, up 39% on the year, and this was driven by strong profit growth in sampling and digital services. Now that I've shared more color on Advantages' solid execution to finish 2021, I'm going to turn our expectations to 2022 at a high level. And I'll start by first talking about what's unchanged. We continue to help brands and retailers solve problems and win in the marketplace. And today, that means helping to navigate record inflation, supply chain constraints, and shifts in consumer demand and marketing mix. As a culture, we continue to plan cautiously and execute relentlessly placing a very high value on doing what we say and keeping our commitment. As a team, we've taken a deep dive into our historical drivers of value creations and we've done a thoughtful analysis of both the challenges and the opportunities that have emerged post-COVID and had a humbling reality check as we evaluated structural shifts in the labor market from here. The new normal, whatever the new normal is, but in the consumer goods marketplace is likely to be different in many ways, especially for labor markets. But our ability to evolve remains core to our DNA. The next stage of our evolution will come with opportunistic reinvestment. The reinvestment will really come in three forms, first in talent, and we're focusing even more funding on talent, stepping up investments in wage and recruiting and retention. And second, in innovation. We're investing to scale adjacent and complementary services, especially in digital. And then third, we're pursuing renovation, accelerating investment in infrastructure and systems and tools to help us to continue to drive productivity. And collectively, these moves will strengthen and extend our franchise and widen our operating moat. As we reinvest in this business and we continue to navigate an environment with a wide range of outcomes, especially around inflation and labor, we expect to deliver an adjusted EBITDA range in 2022 of 490 to 510 million. The outlook reflects an initial budget for 2022 that showed modest year-over-year adjusted EBITDA growth versus 2021, a performance that we could have chosen to pursue. But instead, our leadership and our board decided to pursue a compelling portfolio of high return reinvestment opportunities to position Advantage Solutions even better for the long term. As I suggested, these investments include a mix of talent, innovation, and renovation opportunities. Within talent, we're investing to stay competitive on wage, share resources across our business unit, streamline recruiting, and boost retention. And within innovation, we plan to deploy capital to accelerate growth in higher margin, higher return franchises most likely to thrive post COVID with our most talented entrepreneurs. Within renovation, we're accelerating the pace that we refresh and revitalize our infrastructure foundation. Renovation investments will enhance our productivity, and improve our flexibility as an enterprise. And as always, we have high return expectations for our reinvestments at Advantage. Teams getting capital have submitted rigorous business cases. They face intensive milestone and payback reviews, and we'll continue to share color on progress and payback with the investor community as we go. I'm sure many of you are going to have questions on our outlook, and I will look forward to those, and so will the team. In a few minutes, I also wanted to share a bit of color on our first quarter, which is one month to go. And I guess first the punchline is really not getting any easier out there. Supply chain challenges are bad to worse among brands and the out of stocks remain high. And this in turn squeezes revenue and EBITDA and enlarge components of our sales segment. Labor continues to challenge us as well. We're spending more to recruit and to retain, and we're battling turnover in both hourly and professional ranks. We believe that the investment that I mentioned here will pay great dividends over time. And likewise, we expect that our efforts to realize pricing to fund these wages should move the needle again in 2022, as they did in 2021, because our services remain high return on investment and their need to have rather than nice to have offerings. And we also have cost advantage scale in delivering them even in the face of wage inflation. While we don't provide quarterly guidance, one might assume that Q1 adjusted EBITDA ends up closer to 2018 or 2019 levels rather than 20 or 2021. Finally, on the COVID front, we're watching things very closely. We'll continue to expect the pandemic disruption to get better as the state of health improves But we remain nimble and we remain still prepared for a wider than normal range of outcomes. And with all of that, I'll turn it over to you, Brian.