Advantage Solutions Inc.

Good afternoon and welcome to Advantage Solutions first quarter 2022 earnings conference call. Today's call is being recorded and we have allocated one hour for prepared remarks and questions and answers. At this time, I'd like to turn the conference over to Larsa Blassen from Investor Relations for Advantage. Thank you. You may begin.

Thank you, Operator. Thank you everyone for joining us on Advantage Solutions 2022 First Quarter Earnings Conference Call. On the call with me today are Jill Griffin, Chief Executive Officer, and Brian Stevens, Chief Financial Officer and Chief Operating Officer. After their prepared remarks, we'll open the call for a question and answer session. During this call, management may make forward-looking statements within the meaning of federal securities laws. These statements are based on management's current expectation and involve assumptions, risks, and uncertainties that are difficult to predict and could cause actual results to differ materially from those expressed or implied by such forward-looking statements. 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 forelooking statements are expressly qualified in their entirety by such factors. The company does not undertake any duty to update any forelooking statement except as required by law. Please note management's remarks today will highlight certain non-GAAP financial measures. Our earnings release, which was issued earlier today, presents reconciliations of these non-GAAP financial measures to the most comparable GAAP measure, 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 the website. You may want to refer to the slides during today's call. This call is being webcast, and a recording of the call will also be available on the website. And now I'd like to turn the call over to Jill Griffin.

Thanks, Lhasa. Good afternoon, everyone. Thank you for joining us to discuss our first quarter results and our first earnings call since becoming CEO on April 1st. I am honored and privileged to serve as Advantage Solutions CEO. We have many exciting opportunities in front of us, and I look forward to partnering with the Board of Directors, our senior leadership team, and our associates around the globe to continue driving profitable growth across the enterprise. Similar to previous earnings calls, I'd like to start by providing a high-level overview of our business. Advantage Solutions is a leading provider of outsourced sales and marketing solutions to consumer goods companies and retailers. Our data and technology-driven services, which include headquarter sales, retail merchandising, in-store and online sampling, digital commerce, omnichannel marketing, retail media, and others help brands and retailers of all sizes get products into the hands of consumers anytime, anywhere, in any channel in which they choose to shop. At the most fundamental level, we are a trusted partner and problem solver for our clients. We help our clients sell more while spending less. We operate efficiently, providing fuel for growth. We reinvest into our business at attractive returns, both organically and through tuck-in acquisitions. And as we deliver value, our platform compounds over time. Our success hinges on our talent, and at Advantage, we are talent first. Our successful track record in managing a flexible, large workforce remains an enduring competitive advantage for the company. I would like to take a moment to thank the Advantage Associates for their continued dedication and the work they do day in and day out to serve our clients. They are providing essential, high-return services, helping consumer goods companies and retailers navigate the current environment better, cheaper, and faster. On today's call, I'd like to begin by sharing our first quarter highlights and then move to an update on the 2022 investment activities we outlined on our call last quarter. First, a few key messages from this past quarter. Importantly, Q1 results were largely consistent with our expectations. On the top line, we delivered strong year-on-year revenue growth of approximately 16%. As the recovery from the pandemic progresses, we continue to see a meaningful improvement in our businesses most impacted by COVID, with in-store sampling events up 62% year-on-year. In line with recent prior quarters, our international business continued to rebound as operating conditions improved across Europe as restrictions eased and businesses reopened. I am very pleased with our year-to-date M&A activities Here, we remain focused on acquiring tuck-in assets, particularly in areas that help brands and retailers navigate an increasingly omnichannel world. However, as expected, adjusted EBITDA margins declined due to a shift in revenue mix, headwinds from wage increases on our ongoing investment activities. This includes investing in new higher growth and margin accretive offerings, together with infrastructure to improve efficiencies. We are also spending in wages, recruiting, and retention to stand up significant numbers of new associates to meet client demand for our must-have services. With that as a backdrop, I'd like to drill down a bit deeper on our financial performance in the first quarter. Revenues continue to grow solidly in the quarter, up approximately 16% year on year, driven largely by the continued recovery in our in-store sampling and demonstration services, along with further growth in retail merchandising services and international businesses. As anticipated, our first quarter adjusted EBITDA declined 13% from the prior year period, reflecting the following, a shift in revenue mix with historically lower margin demo business regaining momentum, The ongoing reinvestment activities I just referenced, most notably in the quarter related to staffing and recruiting, continued challenges in our food service business, and we also experienced an unusual increase in the amount of self-insured medical claims. Turning to segment results for the first quarter, revenue growth remained strong in our sales segment, up 11% year-on-year, driven by growth in retail merchandising services and a healthy rebound in the COVID-impacted international business. Sales segment adjusted EBITDA declined 19%, primarily due to the increase in share of lower-margin merchandising revenue that drove the overall top-line increase, as well as heightened cost pressure in our merchandising workforce. Moving to our marketing segment, The recovery continued with revenue up 26% compared with the first quarter last year, as in-store product demonstration recovered significantly compared to a year ago. Marketing segment adjusted EBITDA expanded modestly in the quarter, up 4% year-on-year. This was driven by revenue growth offset by increased headcount and related salary costs. Now that I've shared more color on Advantage's first quarter results, I would like to provide additional detail on the important investments we are undertaking in 2022. As a reminder, this investment will come in three key areas. First, in innovation, we are investing to scale adjacent and complementary services with a targeted focus on higher growth, higher margin, data, intelligence, and digital offerings. Second, in renovation, we are accelerating investment in infrastructure, systems and tools to improve productivity and operational efficiencies across the enterprise. And finally, in talent, we're stepping up spending in wages, recruiting, and retention. Taken together, we expect these efforts will strengthen our franchise and widen our operating moat while driving growth, improving operational efficiencies, and better positioning advantage to capitalize on the many opportunities ahead. Let's take a deeper dive into each, starting first with innovation. We believe a key future growth driver for Advantage is new data and digital solutions that create even better commercial outcomes for our clients. The pandemic has accelerated and changed what's needed to succeed for both manufacturers and retailers. The growth in e-commerce within CPG retailing has created fundamental shifts in consumer behavior, which has in turn impacted retailers. This is why we are evolving our service offerings and focus to better meet the needs and expectations of both. To this end, we are launching new services at Advantage to better address the evolving marketplace and investing in new leadership to run this practice area. These new services aggregate, organize, and create unique database retail-centric solutions that drive more automated decisions for CPG manufacturers and retailers. We see this as the cornerstone of our evolution and a top priority as we look to strategically transition into more data-directed services. This new scaled data intelligence capability combined with our existing physical reach and presence is unique, helping our clients and customers gain insight and pull it all the way through to the transaction, regardless of the channel. We also continue to invest in deepening and widening our capabilities in other core areas of this strategy, such as data-driven supply chain services, retail media, and retail POS analytics. Now let's move on to activities within renovation where we are reinvesting in our core business to enhance productivity and cost efficiency. A key area of focus is new digitally driven recruiting activities that will materially improve speed to hire and reduce cost to hire across our entire enterprise and particularly in our high-volume retail services group. The development of these digital tools will allow our businesses to more efficiently acquire talent. Another core area is our operating technology stacks that power, enable, and optimize location-based retail execution work. We are investing in digital tools and software. We are confident we'll add measurable value and unlock synergies by improving existing staff utilization rates expediting program execution, increasing in-store insights, and providing new data opportunities. And finally, within talent, we are investing to stay competitive on wages and fully capitalize on our innovation and renovation initiatives. These investments are both in wages to improve retention among our existing associates, along with recruiting new associates to further drive our growth and development. As we look ahead, I also wanted to share a bit of color on our second quarter, starting first with the headwinds. Supply chain challenges continue to persist and out-of-stocks remain elevated, pressuring adjusted EBITDA. Likewise, the labor market continues to remain very tight, which, as noted earlier, requires additional incremental spending to recruit and retain across both hourly and professional ranks. That said, we continue to expand our efforts to realize price from customers to fund wage increases in 2022 as we did in 2021. We expect this to result in higher adjusted EBITDA in the second half of 2022. Our services remain high ROI, need to have, rather than nice to have offerings, and we have cost advantage scale in delivering even in the face of wage inflation. Looking at the key tailwinds, we continue to expect the pandemic disruption to slowly subside and anticipate a continued rebound in the services that were most negatively affected by COVID. That being said, we remain prepared for a wider than normal range of outcomes. Altogether, we are affirming our full year adjusted EBITDA guidance range of 490 to 510 million. With that, I'll turn it over to Brian.