Q2 2021 Advantage Solutions Inc Earnings Call

August 9, 2021

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Pardon the interruption. This call will begin momentarily as we are currently still on the best of letting people join we appreciate your patience.

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Good afternoon, and welcome the pay advantage solutions second quarter at 2021 earnings Conference call.

Today's call is being recorded and we've allocated 1 hour for prepared remarks and Q&A.

At this time I'd like to turn the conference over at the data Morrison Senior Vice President of Finance and operations for advantage. Thank you.

You may begin.

Yeah.

Thank you operator thank.

Thank you for joining us on advantage solutions 2021 second quarter earnings Conference call.

On the call with me today are tiny of Dell Mayer, Chief Executive Officer, Brian Stevens, Chief Financial Officer, and Chief Operating Officer Joe.

Youll Griffin, President and Chief commercial Officer, and Dan <unk>, our 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 the 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 for.

Risks and assumptions that are difficult to predict.

Actual outcomes and the 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 the results of operation and elsewhere in the Companys 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, we'll 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 advantage solutions Dot net.

The company has also prepared presentation slides, which are posted on advantages of Investor Relations website.

You may want to refer to the slides during today's call.

This call is being webcast and the recording of this call will also be available on the website.

Now I'd like to turn the call over to Tony of del Mar.

Thanks, Dan and good afternoon, everyone as they did on our first few calls I'd like to start by framing the advantage solutions business, where.

For the leading provider of outsourced sales and marketing solutions to consumer goods companies and retailers. We have a very strong platform of competitively advantage services like headquarter sale retail merchandising in store sampling digital commerce, and shopper marketing and we do this from brands and retailers of.

Of all sizes, we help get the right product on the shelf, whether physical or engaged on and into the hands of consumers. However, they want to shop.

Creating value on your platform is simple, but it's not even at the most fundamental level. We're a trusted partner on problems soccer, we help our clients on the longwall spending lat, we operate efficiently providing fuel for growth.

We reinvest at attractive returns, both organically and through tuck in acquisition.

As we deliver value of our platform compounds over time growing profit at more than 2.5 times the pace of the S&P.

Also as I move further into this discussion I'd like to thank our associates.

We continue to be instrumental in helping consumer goods companies and retailers navigate out of the pandemic.

<unk> are essential services, better cheaper and faster now I'll jump into our update.

Once I conclude my remarks, I will turn things over to Brian and he will discuss our financial results. After that we'll open the call for your questions.

We had solid performance in our second quarter as reopening continues.

Given the company's strong first half performance and second half outlook, we're raising our 2021 adjusted EBITDA guidance to a range of $520 million to $530 million.

In services, most impacted by Covid, we're seeing steady recovery with sampling events in our marketing segment by 4 times year over year in June and more retailers are ramping from July for word. We're also seeing continued strength in at home consumer demand with both volume and <unk>.

Price trends, helping our sales segment.

Also encouraging a handful of higher growth and higher margin franchises like click and collect curbside sampling that scaled meaningfully during COVID-19 has sustained their strength year to date, and we've seen our acquisition and new business pipeline fill back up as we move from all hands on deck manage.

The pandemic, so a more normalized operating and selling environment.

We're proud to be helping clients navigate recovery on reopening racing to stand that tens of thousands of new associates in the still constrained labor environment and also investing through the P&L to innovate for a post pandemic world.

Times like these with the uncertainty and change our when our compounding platform at advantage of really shines, we're navigating an omni channel world that the 15 years of e-commerce growth in just over a year and we're working hard to ensure that consumers are truly delighted when they fully returned to a REIT.

Tail environment.

With our portfolio of the essential services, we continue to help consumer goods companies and retailers navigate and unusual period of post pandemic uncertainty working very closely with them on managing things like divergent growth expectations for at home demand from manufacturers and retailers.

A wide range of expectations for the path of Omnichannel and e-commerce adoption from here on.

Precedented inflation and the need for sticker price hike and more surgical promotions.

<unk> plans for SKU assortment and the return of innovation.

And the growth of retail media networks as a larger piece of the marketing mix.

Here are some highlights from our second quarter.

Revenue growth was robust in our sales segment driven by healthy rebound in Covid impacted international and foodservice businesses and growth in retail merchandising services.

The revenue rebound in marketing was even more substantial as the steady return of product demonstration and sampling delighted consumers and our digital services shined again.

The sales segment did see expected year over year EBITDA flattening.

This was driven primarily by lower margin revenue net investment in our merchandising work force and higher allocated corporate and bonus expenses as the public company 2.

To elaborate on the mix component. The addition of the retail merchandising and international revenue that we saw in the quarter as Covid recovery continues comes at lower margin on.

The modest expected normalization in the headquarter sales services against last year's peak pantry loading was a slight headwind.

The marketing saw healthy EBITDA growth with the steady return of in store sampling and digital growth at strong incremental margin.

As we sit here today, just under halfway through the third quarter, we continue to see solid consumption patterns in the sales segment as baseline volumes remain elevated from pre COVID-19 level.

We expect volume to normalize further as we head back to in person learning and at least hybrid work. This fall.

We're also seeing consumer good supply chain stabilized innovation and product news starting to return price.

The pipe tied to commodities and wage inflation flow through and promotions remained muted.

And product demonstration and sampling we continue to receive strong support in our rollout and consumers are very pleased to see events. They've missed brands are eager to bring innovation and product news to market and demand for events continues to grow. So we're almost halfway back to March 2019 event.

Levels of nearly 400000 with solid gains so far in Q3.

As we noted last quarter standing up armies of tens of thousands of trained associates something that we're uniquely good at it doesn't happen overnight and it's complex and it's costly we continue to invest to recruit train and retain in a challenging labor market that may not normalize immediately or.

Also innovating here, which is important with automation and technology to improve the recruiting process to improve the experience and our results.

On the Covid front, we're watching the pace of vaccine rollout and the path of the Delta very very closely we continue to expect the pandemic disruption to subside further in the second half as the state of help improve but remain nimble and prepared for a wider than normal range of outcomes.

As noted earlier, we're raising our 2021 adjusted EBITDA guidance to a range of $520 million 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 boosting our outlook and delivering against the raised outlook in a wide range of macro scenarios. The guidance range continues to assume 3 key things first in store sampling builds back towards pre COVID-19 levels.

In the second half of 2021.

Second at home demand revert to pre COVID-19 levels in the back of the year.

And last advantage of that in future focused practical solutions to help clients navigate post COVID-19 recovery in areas like sampling innovation and digital commerce and trade promotion optimization through our pioneering new partnership with ever site technology.

Looking out a bit further we'll be entering 2022 with the mid single digit profit lift above 2019 pre COVID-19 levels.

Driven roughly equally from permanent real estate savings acquired EBITDA and innovative new services that will stick.

This tailwind stacks on top of our normal organic growth and tuck in acquisition algorithm setting us up well to invest a bit more organically and our great team and continuing to compound for our owners.

I'll quickly touch on some of the key metrics from our second quarter.

Q2 revenue grew 32, 5% overall and 31, 4% year over year organically to 850 million nice progress versus our 3 prior quarters of -20, -16, and -10, respectively.

Adjusted EBITDA of $122 million was up 8.9% year over year overall.

I hope the demonstration and sampling recovery with the events at 22% in Q2 versus Q1 continued solid at home demand volume and disciplined cost management helped offset investment to stand up large labor based teams very quickly.

Our net debt to EBITDA came in at 3.9% and we continue to expect progress towards 3 times by the end of 2022.

We're excited about our momentum just halfway through 2021 in terms of the shape of the second half, we expect continued sequential recovery quarter over quarter with further recruiting and hiring investments concentrated in Q3 and the final innings of of sampling rebound in Q4.

Finally, we remain focused on our mission to create value for all stakeholders and to continue to win on the advantage compounding platform that I mentioned earlier on.

I'm excited about our future, we're well positioned to win under multiple recovery scenarios, we serve the historically stable and resilient consumer goods. The end market a market. That's just whether the 1 set of century disruption and is emerging stronger for us.

This means tailwind over the next couple of years from a recovery from temporary COVID-19 softness in portions of our business that were tied to in person shopping.

Accelerating omni channel service adoption during Covid that we believe likely 6 and continues to grow like online grocery pickup and delivery sampling and growth in adoption and our margin accretive digital and ecommerce services.

With that I'll now turn it over to Brian to cover our second quarter financial results in more detail.

Thank you Tanya and good afternoon, everyone. It's great to be speaking with you Tony touched on the second quarter highlights so I'll share a bit more color at the segment level the speak again to our full year guidance range.

As mentioned earlier, we grew adjusted EBITDA 8.9% year over year, despite investment the standup the COVID-19 impact of franchises with very large labor forces. Our sales segment grew 22% year over year, the $561.6 million up 21, 2% organically.

The retail merchandising services and a recovery of the.

The Covid impacted international businesses drove the majority of this growth sales.

<unk> segment, adjusted EBITDA was $89.5 million down slightly year over year from the lower margin revenue mix and investment in our workforce.

The marketing segment revenues were up 59% year over year to $288.3 million and up 57, 3% organically.

This follows for prior pandemic impacted the quarter's of -59% -49% -39% of -31% adjusted.

Adjusted EBITDA marketing was up 47, 3% year over year to $32.4 million.

As demonstrations of gambling return non.

Non economic revenue types of that will normalize the margin segment margins a bit but.

On the durable improvements to the mix of services in the segment from for example growth in digital E. Commerce sampling will help the segment margins normalized of higher than pre COVID-19 levels.

Turning to overall margin second quarter adjusted EBITDA margins came in at 14, 4% down 310 bps from the elevated COVID-19 levels in 2020, but up 150 bps from 2019 the year over year margin dip is primarily attributable to the normalizing revenue mix as lower margin services continued to recover.

From Covid and we invest the standup labor in our retail merchandising and sampling services now moving onto our capitalization.

As Tony indicated our net debt to EBITDA finished the quarter at approximately 3.9 times free cash flow should ramp.

Solidly with profit growth in the back half.

Our de Levered balance sheet will yield meaningful cash interest savings of over $70 million on a pretax basis of 2021 when compared to 2019.

As noted in the last quarter, we have no meaningful maturities in the next 5 years and at the end of Q2. Our total funded debt outstanding was approximately $2.1 billion after paying off of $100 million of the ABL borrowings that were outstanding following the close of the day leaseback transaction.

The summary of our debt and equity capitalization can be found on slide 8 and then supplementary slides for Q2 results that were posted on our Investor Relations website.

Now turning to our revised fiscal 2021 outlook as Tony noted, we are raising our fiscal year 2021, adjusted EBITDA guidance range of $522.530 million. So my name is the keep in mind.

3 we will have continued investment largely temporary in recruiting training and retaining talent and labor intensive services sampling and demonstration we will continue to ramp steadily with greater pace expected in Q4.

Our pipeline of high ROIC M&A opportunities is robust we've closed a handful of deals largely high growth high margin specialty agencies more under LOI, we continue to make room for moderate amount of medium term investments through the P&L. This year building on strong organic ideas and projects from our talented leaders.

And we believe these will pay off in 2022 and beyond.

Summing all of this up we had a solid first half we've got some investments to bring in large workforces back into the operations and some unknowns ahead in the second half.

But we remain confident in our strategy and our ability to deliver the increased EBITDA guidance with that I'll turn it back over to Tiger.

Thanks, Brian income.

In closing, we're enthusiastic about 2021 and beyond here at advantage, we're helping clients emerge from unprecedented disruption and change we're winning with tuck in acquisitions and stepped up reinvestment through the P&L, which will accelerate our journey from a labor intensive franchise 2 of data intend.

<unk> of 1 bringing technology enabled services to meet our client and customer needs.

And we'll continue to deliver both cost efficiency and sales effectiveness real growth to serve existing clients and generate new business wins.

With that I'd like to now ask the operator to open the call for your questions.

Okay.

Thank you we will now begin the question and answer session.

To join the question queue you May Press Star then 1 on your telephone keypad.

You will hear of tone acknowledging your request.

We're using a speakerphone please pick up on your handset before pressing any keys.

To withdraw your question. Please press Star then 2 we will pause for a moment of callers join the queue.

The first question comes from Jason English with Goldman Sachs. Please.

Please go ahead.

Hey, good afternoon folks thanks for Slotting me.

A couple of questions Tom.

Tonya you mentioned that the.

For the back half outlook is predicated on 1 some reversal of the scale benefits on the sales side too.

On a recovery back to pre COVID-19 levels of the sampling side. So above just a quick litmus test on what Youre seeing real time on both of those fronts.

How much visibility you have in terms of that the Samsung recovery.

I guess, how much visibility do you have in terms of the the Rebase the re.

Tracing of the App.

On dynamics on the sales side.

That's a great question as you can imagine we're looking at the natural hedges as we have throughout the pandemic and we're seeing sampling rebound and retailers planning to bring the sampling back end consumers delighted to see Sam.

And the only moderation of that is our ability of stanley's platform the quickly so.

So we're seeing great interest in rolling out the sampling and really positive response, and where exactly or a little bit ahead of where we thought we would be at this point rebuilding back to by the end of the year very close to normal sampling as we've seen in the past plus the added benefit of.

We've been able to do with the online corollaries aniline digital of corollaries at accretive margins on the other side of the business in the sale of the business as you know with elevated at home demand in the get tailwind is that when people start to fill out.

We have seen moderation.

And I think the other thing that we've seen is in our sale of business in particular some of our lower margin businesses are ramping up we won some new lower margin businesses and the single source retail.

No.

That's probably I think that we'll be talking about a lot of standing up work forces of large crew is not simple not moving something we're built for but those are the put some of the takes on the business is very similar to what we talked about last quarter and our outlook is the same day.

We've got these natural hedges on the business and exactly what we said in terms of the moderation of at home and the sampling returning in restoring back to normal is what we've expected and it's where we are today.

Yes, no I hear you actually it seems like you could be up for a period, where the whole benefit of sustaining for a while the chapter of recovers.

You mentioned.

It's difficult to stay on the stuff.

As we look across multiple industries, we continuously here of labor shortages of labor inflation of wage increases et cetera, you at the core of an outsize of late.

Outsourced Labor company.

How much is just putting on near term burden on earnings and I guess for.

Is this causing you to have to recalibrate, what you pay your labor force on a ongoing basis to 2 more more durably increase the cost for you to surf.

Great question, and we watch the incredibly closely because this is our most important expense and we've definitely invested in labor this year and as we talked about last quarter, we're seeing very very similar situation in that.

It's much more heavily weighted toward recruiting expense as we stand up our large demo work force on our new sales businesses.

On.

When we're seeing the need for wages to be insulated from generally by market and that's not new for us either.

So what we're seeing is heavily weighted towards recruiting costs and getting thousands of people back to work quickly in a very tight labor market.

In a market, where we're competing with a lot of other than for years to stand up the business.

And at a time when the elevated unemployment benefits are not helping us so if the challenging environment. It's 1 we're equipped to navigate.

But we're seeing very similar to what we saw before and again predominantly in recruiting costs much less so in labor and when they are in labor there in the isolated market. Then as you know, we already pay 30% more than minimum wage across our hourly workforce.

And so.

Yeah.

Yeah. That's helpful. Thank you.

Last question from me and I'll pass it on you made reference to this new agreement on the trade spend side can you elaborate can you tell us more on the mechanics of how the relationship works.

What what sort of growth enablers do you expect this to deliver for you.

Well as you know we try to use our position as the strategic intermediary to really see where there are problems in the industry and we can't think of the bigger 1 and optimizing trade promotion and I know this is something that you wrote thoughtfully at all in 2015, and we've looked at numerous ways to tackle this issue.

And we really believe that the ever site approach and methodology is 1 that we can really bring the bear with our clients on customers is something that we've looked at for a long time when Dan Rick came on board he really pounding the table on the same opportunity and as an executive team we.

The align that this can be a big difference maker on our business. We're really excited about it and I think Dan so passionate about it and I'll turn on the Florida has the talk about why he thinks that thats the game changer, but we're very excited about it.

Thanks, Tanya, yes, Jason I remember reading your piece back in 2015 in thinking of this as the Holy Grail of consumer packaged goods spending.

I was shocked to read it was 5 times bigger than marketing budget.

That half of the 2 thirds of the offers destroyed economic value and it was based as we all know on a rinse and repeat approach.

On prior year promotions, many of which of your scale and based on habits. They actually of a client that has done the same on for price.

And off the structure.

For 25 years kind of desperate to get out as we've talked to them about this opportunity.

Toby might be the post COVID-19 might be the ideal time to go after the cause is.

As we look at it Theres 15, plus months without a lot of promotions to use his history or repeat.

Without a lot to get scale.

So I was excited when I got on board.

I know David Miranda cofounder of ever site. This is of critical unmet client need and the place. It seems to fall down is not on the willingness or awareness, but on execution implementation on the in the field have precise tool was amazing of generating.

Ideas from experimentation and testing real time, and advantage will be amazing and implementing those onto the shelf with TPG.

The retailers of headquarters.

The powerful combination initially it's going to be done as we suggested in our press release with a handful of clients in pilot to test this idea of hepatocytes tool.

Vantage in the field.

But we do think this is a better way to go at the motions non depending on history, particularly at a time when record of inflation demands both price and promotion and as we hear from clients the delays in getting sticker price increase.

Increasing from 60 to 90 to 120 days, so the need something now something out of cycle and the promotion solution is probably bad.

Makes sense.

Guys I'll pass it on.

Once again, if you of a question. Please press Star then 1.

The next question comes from <unk> Kaplan with Morgan Stanley.

Please go ahead.

Thank you Tanya.

<unk> you mentioned that you're watching the Delta variant closely just wondering if you've seen any impact at this point I know, it's it's been sort of a little bit more recent maybe last couple of weeks versus showing up in the quarter, but just any any update sort of real time on on what you're seeing with regard to that.

Well thanks for the question you're right that we have to watch it in real time, and we spend a whole lot of time thinking about and planning for contingencies as we've done for the changing circumstances of the past and the.

The plans that we have today are grounded in the deep work that we're doing as we collaborate with clients on customers and at this point in time, we have not seen any changes we've learned a lot over the past year on a half how to wrestle with challenges while safely and responsibly, bringing back the services that we had.

The suspend in the early days and as I mentioned earlier, we're seeing a strong desire and commitment from retailers and brands to bring the services back.

And we've really over the last year of have developed and executed our playbook with our retail partners that allows us to pivot when we need to at a local level where of health and safety warrants it which really supports the flexible returned to operation strategy that enables of the continued progress towards for.

Recovery. So it's really important to watch as you suggested but today, we do not see impact, but we're ready to pivot as needed likely by community if necessary.

That's great and I wanted to ask about the margin. So you gave some good color on what weighed down the sales EBITDA margin in the quarter, just hoping you could talk about how that progresses from here will you still have the sort of same mix issues that you mentioned and I know you talked about.

Higher level of investment.

I also if you sort of a sense of is this investment largely in marketing as opposed to sales, but just wanted to think about how we should be thinking about margins in the second half.

Yeah, absolutely as the business normalizes, you'll see different margin, but maybe I can just make a couple of comments on that marketing as you expected.

Driven by our return on in for a sampling and remember that the lower margin net but sales is probably where the explanation helps on margin and a couple of things under the surface driving in sales of the margin and first it's the mix of revenues.

The dollars that are driving the revenue growth in the quarter or from structurally lower margin businesses and they were related to a recovery in our international business, which has a lower margin and in our single source retail merchandising business and then offsetting the lower margin or expected normalization of our traditional.

Headquarter sale of businesses at high incremental margin. So if you remember the <unk> of last year. It was our peak pantry loading in the sale of a business. So while there was modest expected year over year moderation on the quarter. This business still remains elevated versus 2019 pre COVID-19 levels and then the.

Second thing that I think is important is the investment in our work force in the quarter, we talked about the fact that we were going to need to do that in the next couple of quarters and that's exactly what happened. So we invested in our retail merchandising work force to make sure that we can recruit and deploy associates to serve the growing business and you should also note.

In our case and I, probably should've mentioned this too that we're working with our partner to take targeted price increases where needed to support the investment related to ongoing wage and then to a lesser degree on margin not not significant but some headwind from year over year public company expenses that got allocated to the <unk>.

All of the segment, but predominantly mix.

Thank you so much hope that's helpful.

The next question comes from Sameer <unk> with Deutsche Bank.

Please go ahead.

Hi, Thanks for taking my question.

My question is more on the sampling events, if I look at the trend. It was improving monthly from January to margin than kind of it seems to have flat lined during the second quarter of a I was curious if it's if it's more of capacity constraints or or is it is it more demand.

<unk> is driving this flat lining and.

And any color you can provide on.

How to.

Breakup the the 2 factor on capital.

So first of demand outpaces supply for sure. The second I would direct you to look at quarter not months, the landscape globally and in any given year. We of squiggly amongst you never know what drove event volume in the prior year, sometimes they're large thematic things, particularly.

Really with the largest retailers that skew that.

What we really are focused on is event count is growing.

On the quarter, it's up 22%, we are forecasting sequential improvement in the third quarter as well, but demand for example, definitely outpacing labor supply and we are recruiting associates as fast as we can we're investing in innovation and automation to improve our recruiting process on our experience.

Our results and leveraging technology and expertise and we're also pleased to see additional retailer the restart in person demos and sampling.

July and we're seeing a healthy ramp that should continue into the next quarter and the and the second half in general.

Got it thank you and the.

The mix on probably more like a straw.

The strategy on E Commerce front traditionally.

Hey.

Health care on grocery have been like the lower penetration and the.

The seem to have gotten some bump from the.

From the Covid times.

Of these.

Covid drivers normalize so what are the strategies, you're using to drive the penetration higher or what's going to drive the growth on the E Commerce front, especially in the in the categories that you participated.

Our strategy is to be able to help consumers reach brands wherever they are so the online corollaries that you see for the services that we ramped during the Covid and we talk about making 15 years of progress in 15 months those are sticky.

And we see accretive margin and high growth in every single 1 of the corollary to what we're doing in the physical store and as we've mentioned in the past these are Anne.

And not replacement that's why we're really excited about getting the labor force set up for in store and continuing all of the replication of what we can do to meet shoppers' wherever they are.

Got it thank you.

Once again, if you of a question. Please press Star then 1.

We have no more questions I'll turn it over to Dan <unk> for closing remarks.

Alright, Hey, good afternoon, 1 seconds.

Hello, guys.

I'll put my part of the fundamental investor hat back on for Greg back up actually.

<unk> stated some of this before but we are in the same spot.

Advantage is a proven compounds, we've got healthy margins and returns trading inside of 10 times consensus of <unk> 22 EBITDA.

The wide discount as most of you know to consumer goods and markets that we served.

And high quality services businesses that we arguably should be comped against.

On the consumer realm.

We are in a central sales and marketing partner for clients. We win the battle on shelf every day for their brands and for the innovation.

An analogy that may be helpful.

This isn't that different.

The category from 1 that a lot of us understand pretty well beverage bottlers.

Except for we have better growth better margins and better returns. These are publicly traded assets around the world the trade for for turns or more.

The media.

Just the come to understand the steadiness and I appreciate the compounding nature of them. The fact that they're tied to a very stable set of end markets and provide a lot of value every day to the folks that do the branding.

Innovation alongside them.

We continue to believe the more awareness and more on liquidity, we will close our GAAP to current share value.

And with continued prudent reinvestment in <unk>.

Things like trade promotion optimization and sampling innovation well on.

Unlock future value with this great team.

Thanks, everyone for joining us please don't hesitate to reach out for 1 on ones and we hope to be live on the conference circuit by late fall.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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Good afternoon, and welcome to advantage of solutions second quarter 2021 earnings Conference call.

Today's call is being recorded and we've allocated 1 hour for prepared remarks and Q&A.

At this time I'd like to turn the conference over to 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 advantaged solutions 2021 second quarter earnings conference call on.

On the call with me today are tiny of del Mar Chief Executive Officer, Brian Stevens, Chief Financial Officer, and Chief operating Officer.

Joe Griffin, President and Chief commercial Officer, and Dan <unk>, our 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 of an analysis of financial condition on the results of operation and elsewhere in the Companys 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, we will highlight certain non-GAAP financial measures.

The company has also prepared presentation slides, which are posted on the advantages of Investor Relations website.

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 Tony of del Mar.

Thanks, Dan Good afternoon, everyone as I did on our first few calls I'd like to start by framing the advantage solutions business.

For the leading provider of outsource sales and marketing solutions to consumer goods companies and retailers. We are of very strong platform of competitively advantage services like headquarter sale retail merchandising in store sampling digital commerce, and shopper marketing and we do this for brands and retailers of all.

All sizes, we help get the right products on the shelf, whether physical or digital and into the hands of consumers. However, they want to shop create.

Creating value on your platform is simple, but it is not easy at the most fundamental level, we're a trusted partner and problem solver, we help our clients sell more while spending less we operate.

Efficiently providing fuel for growth.

We reinvest at attractive returns, both organically and through tuck in acquisition.

We deliver value our platform compounds over time growing profits at more than 2.5 times the pace of the S&P.

Also as I move further into this discussion I'd like to thank our associates.

Continue to be instrumental in helping consumer goods companies and retailers navigate out of this pandemic, providing our essential services better cheaper and faster now I'll jump into our update.

Once I conclude my remarks, I will turn things over to Brian and he will discuss our financial results. After that we'll open the call for your questions.

We had solid performance in our second quarter as reopening continued given.

Given the company's strong first half performance and second half outlook, we're raising our 2021 adjusted EBITDA guidance to a range of $520 to $530 million.

In services, most impacted by Covid, we're seeing steady recovery with sampling events in our marketing segment.

By 4 times year over year in June and more retailers are ramping from July for award.

We're also seeing continued strength in at home consumer demand with both volume and price trends, helping our sales segment.

Also encouraging a handful of higher growth and higher margin franchises like click and collect curbside sampling that scaled meaningfully during COVID-19 has sustained their strength year to date.

And we've seen our acquisition and new business pipelines fill back up as we move from all hands on deck, managing the pandemic to a more normalized operating and selling environment.

We're proud to be helping clients navigate recovery and reopening racing to stand that tens of thousands of new associates in a still constrained labor environment and also investing through the P&L to innovate for a post pandemic world.

Times like these with the uncertainty and change our when our compounding platform at advantage really shines, we're navigating an omni channel world that seen 15 years of e-commerce growth in just over a year and we're working hard to ensure that consumers are truly delighted when they fully returned to a REIT.

<unk> environment.

A wide range of expectations for the path of Omni channel and e-commerce adoption from here and precedented inflation and the need for sticker price hike and more surgical promotions.

Deferring plans for SKU assortment and the return of innovation.

And the growth of retail media networks as a larger piece of the marketing mix.

Here are some highlights from our second quarter.

Revenue growth was robust in our sales segment driven by healthy rebound in Covid impacted international and foodservice businesses and growth in retail merchandising services.

The revenue rebound in marketing was even more substantial as the steady return of product demonstration and sampling delighted consumers and our digital services shined again.

The sales segment did see expected year over year EBITDA flatness. This was driven primarily by lower margin revenue net investment.

Investment in our merchandising work force and higher allocated corporate and bonus expenses as a public company.

To elaborate on the mix component. The addition of the retail merchandising and international revenue that we saw in the quarter.

<unk> recovery continues comes at lower margin and the modest expected normalization in the headquarter sales services against last year's peak pantry loading was a slight headwind.

Marketing saw healthy EBITDA growth with the steady return of in store sampling and digital growth at strong incremental margin.

As we sit here today, just under halfway through the third quarter, we continue to see solid consumption patterns in the sale of segment as baseline volumes remain elevated from pre COVID-19 level.

We expect volume to normalize further as we head back to in person learning and at least hybrid work. This fall.

We're also seeing consumer good supply chain stabilized innovation and product news starting to return price.

The pipe tied to commodities and wage inflation flow through and promotions remained muted.

Levels of nearly 400000 with solid gains so far in Q3.

Also innovating here, which is important with automation and technology to improve the recruiting process to improve the experience and our results.

On the Covid front.

We're watching the pace of vaccine rollout and the path of the Delta very very closely we continue to expect the pandemic disruption to subside further in the second half as the state of health improves but remain nimble and prepared for a wider than normal range of outcomes. As noted earlier, we are raising our 2000.

21, adjusted EBITDA guidance to a range of $520 million to $530 million.

As many of you know, we plan cautiously and execute relentlessly.

In the second half of 2021.

Second at home demand reverts to pre COVID-19 levels in the back of the year.

Looking out a bit further we'll be entering 2022 with the mid single digit profit lift above 2019 pre COVID-19 levels.

Driven roughly equally from permanent real estate savings acquired EBITDA and innovative new services that will stick.

I'll quickly touch on some of the key metrics from our second quarter Q.

Q2 revenue grew 32, 5% overall and 31, 4% year over year organically to 850 million nice progress versus our 3 prior quarters of -20, -16, and -10, respectively.

Adjusted EBITDA of $122 million was up 8.9% year over year overall.

I hope he demonstration and sampling and recovery with the events at 22% in Q2 versus Q1 continued solid at home demand volume and disciplined cost management helped offset investment to stand up large labor based teams very quickly.

Our net debt to EBITDA came in at 3.9% and we continue to expect progress towards 3 times by the end of 2022.

Finally, we remain focused on our mission to create value for all stakeholders and to continue to win on the advantage compounding platform that I mentioned earlier on.

I'm excited about our future we are well positioned to win under multiple recovery scenarios, we serve of historically stable and resilient consumer goods. The end market a market. That's just whether the 1 set of century disruption and is emerging stronger for us.

This means tailwind over the next couple of years from a recovery from temporary COVID-19 softness in portions of our business that were tied to in person shopping.

With that I'll now turn it over to Brian to cover our second quarter financial results in more detail.

Thank you Tanya and good afternoon, everyone. It's great to be speaking with you Tony touched on the second quarter highlights so I'll share a bit more color at the segment level speak again to our full year guidance range as.

The.

The Covid impacted international businesses drove the majority of this growth.

Segment, adjusted EBITDA was $89.5 million down slightly year over year from the lower margin revenue mix and investment in our workforce the.

The marketing segment revenues were up 59% year over year to $288.3 million and up 57, 3% organically.

This call is for prior pandemic impact of quarters of -59% -49% -39% of -31% adjusted.

Adjusted EBITDA on marketing was up 47, 3% year over year to $32.4 million.

As demonstrations and sampling return non economic revenue types of that will normalize the mortgage segment margins a bit but.

On the durable improvements to the mix of services in the segment from for example of growth in digital E. Commerce sampling will help the segment margins normalize through higher than pre COVID-19 levels.

Turning to overall margin second quarter adjusted EBITDA margins came in at 14, 4% down 310 bps from the elevated COVID-19 levels in 2020, but.

The 150.

From 2019 of the year over year margin dip is primarily attributable to the normalizing revenue mix as lower margin services continued to recover from Covid and we invest the standup labor in our retail merchandising and sampling services now moving on to our capitalization.

As Tony indicated our net debt to EBITDA finished the quarter at approximately 3.9 times free cash flow should ramp.

Solid Lee with profit growth in the back half of.

Delever the balance sheet will yield meaningful cash interest savings of over $70 million on a pretax basis of 2021 when compared to 2019.

A summary of our debt and equity capitalization can be found on slide 8.

Missouri slides for Q2 results that were posted on our Investor Relations website.

Now turning to our revised fiscal 2021 outlook.

Tony noted we are raising our fiscal year 2021, adjusted EBITDA guidance range of $522.530 million. So my name is the keep in mind.

Q3 will have continued investment largely temporary in recruiting training and retaining talent and labor intensive services.

Sampling and demonstration will continue to ramp steadily with greater pace expected in Q4.

Our pipeline of high ROIC. The M&A opportunities is robust we've closed a handful of deals largely high growth high margin specialty agencies more under LOI, we continue to make room for moderate amount of medium term investments through the P&L. This year building on strong organic ideas and projects from our talent the leaders.

And we believe these will pay off in 2022 and beyond.

All of this up we had a solid first half we've got some investments to bring in large workforces back into the operations and some unknowns ahead in the second half.

But we remain confident in our strategy and our ability to deliver the increase the EBITDA guidance with that I'll turn it back over to Tyler.

Thanks, Brian.

The 1 bringing technology enabled services to meet our client and customer needs.

And we'll continue to deliver both cost efficiency and sales effectiveness real growth to serve existing clients and generate new business wins.

With that I'd like to now ask the operator to open the call for your questions.

Okay.

Thank you we will now begin the question answer session to.

To join the question queue you May Press Star then 1 on your telephone keypad.

You will hear of tone acknowledging your request.

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To withdraw your question. Please press Star then 2 we will pause for a moment of callers join the queue.

The first question comes from Jason English with Goldman Sachs. Please.

Please go ahead.

Hey, good afternoon folks thanks for Slotting me up.

A couple of questions Tom.

Tonya you mentioned that.

For the back half outlook is predicated on 1.

Some reversal of the scale benefits on the sales side too.

The recovery back to pre Covid levels of the sampling side. So above just a quick litmus test on what Youre seeing real time on both of those fronts, how much visibility do you have.

Terms of that the same thing recovery.

I guess, how much visibility do you have in terms of the re basing of the retracement of the.

The at home dynamics on the sales side.

That's a great question as you can imagine we're looking at these natural hedges as we have through the pandemic and.

We're seeing sampling rebound and retailers planning to bring the sampling back end consumers delighted to see sampling and the only moderation of that is our ability to stay on these platforms up quickly.

What we've been able to do with the online corollaries and the digital corollaries at accretive margins on the other side of the business in the sale of of the business as you know with elevated at home demand and you get tailwind as and when people start to go out.

We've seen the moderation.

And I think the other thing that we've seen is in our sale of business in particular some of our lower margin businesses are ramping up we won some new lower margin businesses in the single source retail.

So.

That's probably I think that we'll be talking about a lot of standing up workforces of large crew not simple and let me be something where adult for but those are the put some of the takes on the business is very similar to what we talked about last quarter and our outlook is the same that you know of.

We've got these natural hedges on the business and exactly what we said in terms of the moderation of at home and sampling returning in restoring back to normal is what we've expected and it's where we are today.

Yes, no I hear you actually it seems like you could be up during the period, where the whole benefit of sustained for a while in south of recoveries.

You mentioned.

It's difficult to stay on the step up as.

As we look across multiple industries, we continuously here of labor shortages of labor inflation and wage increases et cetera, you at the core of an outside.

Outsourced Labor company.

How much is just putting on near term burden on earnings and I guess more importantly is this causing you to have to recalibrate. What you pay your labor force on the ongoing basis to 2 more more durably increase the cost for you to surf.

It's much more heavily weighted toward recruiting expense as we stand up our large demo work force on our new sales businesses.

And.

When we're seeing the need for wages to be inflated it and generally by market.

And thats not new for us either.

So what we're seeing is heavily weighted towards recruiting costs and getting thousands of people back to work quickly in a very tight labor market.

In a market, where we're competing with a lot of other on for years to stand up this business.

And at a time when the elevated unemployment benefits are not helping us so if the challenging environment. It's 1 we're equipped to navigate.

And so that's basically what we're seeing.

Yeah. That's helpful. Thank you.

Last question from me and I'll pass it on you made reference to this new agreement on the trade spend side can you elaborate can you tell us more on the mechanics of how the relationship works.

What what sort of growth enablers do you expect this to deliver for you.

Well as you know we try to use our position as the strategic intermediaries to really see where the problems in the industry and we can't think of the bigger ones on optimizing trade promotion and I know this is something that you wrote thoughtfully at all in 2015, and we've looked at numerous ways to tackle this.

Issue and we really believe that the ever site approach and methodology is 1 that we can really bring the bear with our clients on customers is something that we've looked at for a long time when Dan Rick came on board he really pounding the table on the same opportunity and as an executive team.

We aligned the this can be a big difference maker on our business, we're really excited about it and I think.

So passionate about it and I'll turn on the Florida has to talk about why do you think that that's a game changer, but we're very excited about it.

Thanks, Tanya, yes, Jason I remember reading your piece back in 2015 and thinking of this as the Holy Grail of consumer packaged goods spending.

I was shocked to read it was 5 times bigger than marketing budgets.

That half the 2 thirds of the offers destroyed economic value and it was based as we all know on a rinse and repeat approach.

Based on prior year promotions, many of which are sale.

Based on habits. They actually have the client has done the same on for price.

Infrastructure for.

The 25 years any desperate to get out as we talked to them about this opportunity.

All of you might be the post COVID-19 might be the ideal time to go after the because as we look at it Theres 15, plus months without a lot of promotions to use of history or repeat.

Without a lot to get scale.

So I was excited when I got on board.

I know David Miranda cofounder of ever say this is of critical unmet client need and the place. It seems to fall down is not on willingness or awareness, but on execution implementation on the in the field.

Precise tool is amazing of generating ideas from experimentation and testing real time and advantage will be amazing at implementing those onto the shelf with TPG.

And retailers of headquarters.

It's the powerful combination.

Initially it's going to be done as we suggested on our press release with a handful of clients in pilot to test this idea of pepper sites tool.

Vantage in the field, but we do think this is the better way to go at the emotions non depending on history, particularly at a time when record of inflation demand, both price and promotion and as we hear from clients the delays in getting sticker price increase.

The increasing from 60 to 90 to 120 days, so the need something now something out of cycle and the promotion solution is probably bad.

Makes sense.

These guys I'll pass it on.

Once again, if you have a question. Please press Star then 1.

The next question comes from the Tony Kaplan with Morgan Stanley.

Please go ahead.

Thank you Tanya.

<unk> you mentioned that Youre watching the Delta variant closely just wondering if you've seen any impact at this point I know, it's it's been sort of a little bit more recent maybe last couple of weeks versus showing up in the quarter, but just any any update sort of real time on on what you're seeing with regard to that.

Well. Thanks for the question you are right that we have to watch it in real time, and we spend a whole lot of time thinking about and planning for contingencies as we've done for the changing circumstances of the past and the.

The plans that we have today are grounded in the deep work that we're doing as we collaborate with clients on customers and at this point in time, we have not seen any changes we've learned a lot over the past year and a half how to wrestle with challenges while safely and responsibly, bringing back the services that we had.

The suspend in the early days and as I mentioned earlier, we're seeing a strong desire on commitments from retailers and brands to bring the services back.

And we've really over the last year and have developed and executed our playbook with our retail partners that allows us to pivot when we need to at a local level where of health and safety warrants it which really supports the flexible returned to operation strategy that enables of the continued progress towards full of.

Recovery. So it's really important to watch as you suggested but today, we do not see impacts, but we're ready to pivot as needed likely by community if necessary.

Higher level of investment.

Also if you said you of a sense of is this investment largely in marketing as opposed to sales, but just wanted to think about how we should be thinking about margins in the second half.

Yeah, absolutely as the business normalizes, you'll see different margin, but maybe I can just make a couple of comments on the marketing as you expected.

It's driven by our return on in for a sampling and remember that's the lower margin net but sales is probably where the explanation helps on margin and a couple of things under the surface driving in sales of the margin and first it's the mix of revenues. So the dollars that are driving the revenue.

Rose in the quarter or from structurally lower margin businesses and they were related to a recovery in our international business, which is the lower margin and in our single source retail merchandising business and then offsetting the lower margin were expected normalization of our traditional headquarter sale of businesses.

At high incremental margin. So if you remember the <unk> of last year. It was our peak pantry loading in the sale of business. So while there was modest expected year over year moderation on the quarter. This business still remains elevated versus 2019 pre COVID-19 levels and then the second thing that I think is important.

Is the investment in our work force in the quarter, we talked about the fact that we were going to need to do that in the next couple of quarters and that's exactly what happened. So we invested in our retail merchandising work force to make sure that we can recruit and deploy associates to serve the growing business and you should also note and you know the case and I, probably should've mentioned that.

2 that we're working with our partner to take targeted price increases where needed to support the investment related to ongoing wage and then to a lesser degree on margin not not significant but some of the headwind from year over year of public company expenses that got allocated to the sale of segment, but predominantly.

Next.

Thank you so much hope that's helpful.

The next question comes from Sameer <unk> with Deutsche Bank.

Please go ahead.

Alright, Thanks for taking my question.

My question is more on the sampling events, if I look at the trend. It was improving monthly from January to margin than kind of it seems to have flat lined during the second quarter.

I was curious if it's if it's more of capacity constraints or is it is it more demand.

<unk> is driving this flat lining and.

And any color you can provide on.

How to.

Break up the 2 factor yeah on capital so.

So first demand outpaces supply for sure. The second I would direct you to look at quarter not months, the let's get the globally and in any given year. We of squiggly Mark you never know what drove event in volume in the prior year, sometimes they're large thematic things, particularly with the law.

Just retailers that skew that the.

We really are focused on is the bank count is growing on the.

The quarter, it's up 22%, we're forecasting sequential improvement in the third quarter as well, but demand for example, definitely outpacing labor supply and we are recruiting associates as fast as we can we're investing in innovation and automation to improve our recruiting process on our experience on a rig.

Salt and leveraging technology and expertise.

And we're also pleased to see additional retailers restart in person demos and sampling in July and we're seeing of healthy ramp that should continue into the next quarter and in the second half in general.

Got it thank you and the <unk>.

Next on probably more like the strategy on E Commerce front traditionally see.

The health care on grocery have been like the lower penetration and the seem to have gotten some from from the from the Covid times.

Of these.

Covid drivers normalize so what are the strategies, you're using to drive the penetration higher or what's going to drive the growth on the ecommerce front, especially in the in the categories that you participated.

Our strategy is to be able to help consumers reach brands wherever they are so the online corollaries that you'd see for the services that we ramped during the Covid, we talk about making 15 years of progress in 15 months those are sticky.

And we see accretive margin and high growth in every single 1 of the corollary to what we're doing in the physical store and as we've mentioned in the past these are Anne.

And not replacement that's why we're really excited about getting the labor force stood up for in store and continuing all of the replication of what we can do to meet shoppers' wherever they are.

Got it thank you.

Once again, if you have a question. Please press Star then 1.

We have no more questions I'll turn it over to Dan <unk> for closing remarks.

Sorry, I had the good afternoon 1 seconds.

Hello, guys.

I'll put my part of the fundamental of Investor hat back on for Greg That's up actually.

Stated some of this before but we're on the same spot.

Advantage is a proven compounds, we've got healthy margins and returns trading inside of 10 times consensus of <unk> 22 EBITDA.

That's the wide discount as most of you know to consumer goods and markets that we served.

And high quality services businesses that we arguably should be comped against.

And the consumer realm.

We are in a central sales and marketing partner for clients. We win the battle on shelf every day for their brands and for their innovation.

An analogy that may be helpful.

This isn't that different <unk>.

The category from 1 that a lot of us understand pretty well beverage bottlers.

Except for we have better growth better margins and better returns. These are publicly traded assets around the world the trade for for turns or more.

Than we do.

Just don't come to understand the steadiness and appreciate the compounding nature of them. The fact that they're tied to a very stable set of end markets and provide a lot of value every day to the folks that do the branding.

Innovation alongside them.

We continue to believe the more awareness and more liquidity, we will close our GAAP to current share value.

And with continued prudent reinvestment in <unk>.

Things like trade promotion optimization and sampling innovation well on.

Unlock future value with this great team.

Thanks, everyone for joining us please don't hesitate to reach out for 1 on ones and we hope to be live on the conference circuit by late fall.

This concludes today's conference call you may disconnect your lines.

Thank you for participating and have a pleasant day.

Q2 2021 Advantage Solutions Inc Earnings Call

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