- Earnings call transcript Q3 2022

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Operator

Good afternoon and welcome to Advantage Solutions Third Quarter 2022 Earnings Conference Call. Today's call is being recorded and we have allocated 1 hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Lasse Glassen, Investor Relations for Advantage. Thank you.

You may begin.

Lasse Glassen

operator. you, Thank for quarter everyone, on Solutions Advantage Thank conference joining call. third earnings XXXX you, us

On with Officer Officer will and Officer. the Chief their open Brian Griffin, call After a Stevens, me the today call Chief question-and-answer remarks, Financial prepared and for Operating Jill Chief we are session. Executive

highlight Discussion to differ uncertainties laws. of including qualified Financial company's expressed are Commission. due of to and or expressly management and could such based Factors filings Condition does The entirety fully not on undertake the company Analysis by are All Securities with the to any outcomes and that and Exchange and may call, implied Management's in sections within described materially statements, remarks those involve this Actual actual and statements such materially risks duty by from new forward-looking required and as revise statements results Results difficult elsewhere note factors. in statements or the law. differ the any factors, those whether current These expectations to forward-looking Risk that non-GAAP meaning could in cause During statements. of certain make of predict more their assumptions, forward-looking Operation a as number future measures. forward-looking and federal except are titled results Please events a information, result will or update today financial otherwise, by securities of management's and management's

be which on comparable also was The website section measures non-GAAP prepared GAAP which at Investors has advantagesolutions.net. which today, the these can presentation of financial on the earnings reconciliations the issued presents posted slides earlier found our release are website. most of company measure to Our

call. may Advantage's over to now is Griffin. to CEO, slides the of a and to the available recording want call today's to also turn call And I'd the during like call refer being This is on webcast the You website. Jill

Jill Griffin

Good conference Lasse. seeing trends afternoon, are for everyone. some highlights performance by joining quarter update provide well on that you I'd from results Brian us to call. on our Thank key begin today third outlook. the details commentary Thanks, then third like quarter. as full will of additional along we our XXXX financial year on on as across our the quarter our businesses with third an providing

Before Amid operating and day and take begin, dedication do of a the backdrop, to difficult are associates they the to achievements to I'd like am an moment day incredibly thank exceptionally team's I in commendable. Advantage their for their work clients. our proud out we service efforts continued and our

helping better, high-return environment Our are services, cheaper navigate and retailers consumer providing associates the and goods companies essential faster. current packaged

let's meet large company. difficult that, Our well labor environment start the both like is is for of has retain merchandising business. labor our availability a source from a key the wage talented being team past our the this competitive by With observations and other availability continued advantage inflation of challenging quarter that business limited labor, driven regarding with few to true and demand Advantage Starting and first availability. as to It retail conditions. our as with business Insufficient find for talent sampling very macroeconomic services. demonstration for must-have remains our employers impacted exceptionally

both to low at relative participation worse half progressed. labor historically XXXX, In of the While second and absolute our as our expectations. this To remain key indicators, improving the year the have rates previous levels. forecast the anticipated in including gotten trends point, market labor actually

progressed. stabilization had the to related XXXX, as inflation to addition, In year of has continued second we anticipated remain to serve elevated cost half the throughout some whereas

CPG policy is brands most macroeconomic spend. continue recent anticipated retailers We to and uncertainty exacerbated by but materialized in existing not with pushed Fed how see growth, have as some in least, cases, not opportunities broader and, customers notably been Business out to new monetary and ongoing consumers, future Last have wages. changing periods.

a challenges approximately out ago, and sampling driven historically once our the face mainly quarters, growth recovery stocks Similar up the levels at Advantage While businesses than events high the of supply a to position and is XX% chain retailers in-store better notwithstanding, of solid revenue largely was continue recent year-on-year. and continued sampling remain by our it led difficulties. year by recovery in delivered year-on-year most were business. in the was prior growth demonstration to by pandemic. These again, impacted XX%, In-store demonstration the of

in-store were the quarter third highlighting slower XX% As measured in recovery quarter third levels, marketing pre-pandemic anticipated demonstration events of a levels, from only slight quarter, than last XXXX our sampling and segment. against at XX% improvement

has than worsening In pace the was much third-party addition, environment. macroeconomic steady a originally growth the anticipated into back retail in merchandising saw and and in to we services. as heading offset Overall, build services partially slower progressed our declines we retailing at it due further labor we which were selling COVID-impacted been businesses by but had has XXXX, of

expected consistent with last declined. As margins and quarter, adjusted EBITDA

impact continuously labor of our challenging To meet spending down increasing third XXX demand new recruiting market due services. wages, and up pricing higher basis on the for wages implementing to were by For points to the offset and revenue help from numbers pressures. in we a increases. a approximately cost margins associates of This retention and headwinds mix significant shift stand quarter, includes in to benefits, are

to would employment market we highlighted implemented. have a expect and to lag discussions previous this we increases are As in the stabilizes. continue price until these between see disclosures, persist timing We when

been these Importantly, actions, of generally ongoing the understanding clients have increases. pricing despite

achieved in through first sequential we XX% of a the X months XXXX, sequential Importantly, despite nearly macro revenue quarter. the and have adjusted year-over-year each growth during overall challenges EBITDA improvement

more the environment a longer ahead, operating proving normalized take is much anticipated. Looking than however, pre-pandemic to return to we

in no course the of labor to seen market. I the as wage noted exacerbate. from improvement headwinds have During Fundamentals earlier, the and inflation continue year, we

other to enterprise. competitive as maintain stay across we activities business sampling areas to workforce result, we wages in on to up in-store and a efforts the and our stand invest our are demonstration As continuing

we Importantly, recruiting backdrop. speed in to talent market new benefits materially a quarter to acquire the to third software that year results challenging our are time software incremental more higher are efficiently improved early is has including businesses higher reduction and from This despite enabling the compared to our in the a ago. positive, seeing

retain we proactive enough customers. these despite able hire continued efforts, to However, demand associates to from and strong not the service simply are our

headwinds by will result, will than need our a the to pivot environment, be And conditions emphasis of shortly. capital have. quarter on beyond As performance year. XXXX much deleveraging rebound be macro are more of were our we That extend With signs than said, we remain muted half have, expecting our rather to operating this in anticipated on sheet and the with additional Concurrently, longer for I'll and of to services with inflationary more the we the second macroeconomic outlook. third ultimately allocation we details given the nice normalization. and exhibit the turn to continue had a path to as of offerings All million to respect of scale to have EBITDA a retail it will Brian making taken current cost intend $XXX drivers details $XXX are in reducing on we adjusted provide revenue. decrease M&A the more delivering in growth In in million. more term we to on until labor a to range priorities. year and continued Brian that more normalized advantage that, guidance focused balance our definitive together, less over near the our environment, our evidenced full

Brian Stevens

Jill on Jill a our our I'll our for full segment Thank more color guidance. with and sales the third joining thank highlights, segment. level discussed results quarter you, so year bit Beginning you, everyone, our provide call. and

reflecting and return a basis up segment Third X% services, $XXX in-store points quarter XX% at offset EBITDA decline $XX result the was third-party segment following year-on-year businesses a and Revenue inflationary revenue and increased by year-over-year, lower to Marketing primarily demonstration in-store in inflationary higher primarily merchandising XXX driven a a In and in EBITDA such revenue of by XXX declined single-source came the mix and margins coupled and lower such The in sampling businesses, driven selling segment. services, million of inflationary services. Sales decline labor sampling shift, pressures. to to as volumes merchandising was costs in by and strength events, medical decrease higher X% retail investment in basis reflecting and wage adjusted were EBITDA of and $XX due of partially an pressure in A wage our due revenue areas year-on-year. the increase segment is demonstration segment adjusted million retail benefits. higher XX% technology million aggregate, year-on-year. the EBITDA points million partially in-store pressures. improvement XXX by revenue, $XXX in up is as basis of retail in marketing adjusted of margin largely driving XX.X%, sales in sales points expenses and with down segment offset in low-margin from year-on-year. adjusted Marketing increase margin

Moving discuss sheet on to balance some items.

flow in to cost of Our and year approximately the to continue balance in continue to the to pressure, Despite third growth continued the finished expected the net throughout the we adjusted times. quarter. quarter cash the free environment inflationary debt with EBITDA X.X ramp fourth expect

in debt have maturities end the can In slide X XX% related profile remains a to CARES of our of year, prior to tax X For quarter, I'd years. like to outstanding At these $X.X no EBITDA billion. results of we our the in free capital supplementary working adjusted healthy and which summary to expect our and and we in approximately the the now slides for items, business. sampling XX%. take nonrecurring our be None earnout website. Act XXXX, flow of anticipate funded the rebuild our normalized unusually Investors with free equity next payments be into allocation discuss to a rate cash flow to debt the conversion section conversion on the strategy. we capitalization quarter our related briefly third approximately A and to demonstration found total third be payroll of the quarter, debt XX% capital of posted full of payment continued high cash more the XX% line meaningful account and

as noted in As deleveraging emphasis M&A. balance shifting to are priorities sheet a macroeconomic operating current of our and we remarks, less on our focus more of on Jill result with environment her conditions, our

to turning for fiscal outlook our XXXX. Now

in a our $XXX $XXX to million reduction few million discuss million As our anticipated XXXX to updating range Jill I'll mentioned, adjusted from a outlook. to fiscal year $XXX factors EBITDA previously. million we now are of behind guidance key $XXX the

exceptionally normalcy First, be labor that to happening is much is more availability continues return to expected. to and tight than it slowly

course has continued measured fact, in-store our our merchandising demand it to Relative year. businesses business by expectations, as sampling traditional offerings. a of in despite In as well resulted more retail over indicators, gradual of our as demonstration worsened the rebuild and previous the our for this has solid

Second, our pressures, have business. inflationary we to negatively impacted operating Moreover, in certain also are leverage of wages in margins. profitability has primarily costs our continued labor-intensive businesses fully subscale, the in negatively our which not workforce fixed able impacted our

benefits, cost base, other we areas costs higher-than-anticipated medical, and are with other travel, at gasoline our of items. our seeing key Looking including

retailers uncertainty CPG challenged Third, and consumers, has macroeconomic brands. broad

anticipated materialize slower we throughout New until we certain we and/or anticipate be the have and in year deferred also XXXX have expanded to executing than engagements XXXX. that seen been projects also

As balance throughout the the to these the headwinds year. of to fourth macroeconomic expect we ahead we look persist quarter,

to high-level to The We are year. working proactively of it and the as performance relates impacts for remainder some business of additional are these the Advantage. the following considerations to mitigate the our

increase, diligent And expect want month positive. to we see we market being of until as in as in implementation. regards and be pricing several pricing stabilizes, remains very these we to reiterate to First, costs said, discussions it dynamic. continue That lag labor the still results that to labour are the

are we our leverage, to Second, balance sheet. deleveraging of with to prioritize continuing respect

expect anticipate However, EBITDA will quarter. performance that the our in sequential our net XXXX fourth financial slightly the be guidance, continued adjusted given from we at improvement we the XXXX show elevated to EBITDA third, to levels. adjusted year-end, debt And

time The customer macroeconomic Based has our tailwind the and feed confident working although and on the build that in we taken administration to a provide ongoing continued returning rebound will we our in strong demonstration levels is in-source to better environment Securing XXXX. our Looking headwinds. of evolving continues expected the demand, businesses continue than sampling through be are back be anticipated. real to to is for to businesses labor sampling remain path to Advantage, beyond biggest challenge. handle positioned longer pandemic XXXX, diligently

on earnings and We will that, will provide XXXX With fiscal call now formal fourth we quarter the early question-and-answer more up session. in a guidance open our for March. full call year for

Operator

begin now from question-and-answer first the question the will session. instructions] We [Operator with Goldman Jason will And English Sachs. be

Jason English

quick A few questions.

here First, the to to longer labor X/X your return understand I historically, EBITDA and on particularly in in for and quarters earnings quarter. now. first what's it's things X fourth given or happening the X/X environment. you've generated roughly the of taking normalcy, in the But that

the this XQ or in rate will quarter. something at history kind seeing run incremental instead closer around suggests or actually so. you're of where backwards fourth $XXX should of year, this earning EBITDA So be improvement, going on you XXX is be $XXX you're just roughly based about of to million forgetting already But year, million and

So incremental tracking building making backward are points the pass what's year? so you've and this to move? what causing Like far XQ pressure what the been than worse the in they're business

Brian Stevens

in historic our You business have keeping numbers. seasonality should our are right that us

macroeconomic I decisions. some through not to labor the there's as this lag They we we between feel would a going a our some to is we to for of yet take is is braces while continuing most say getting new seeing push making a about. market as to are that, out the there increase. is mentioned, that And the which and retailers are slowdown lag continue wages we've And there a how you're make And in our we're the stabilizing. the better more as are change difficult, I as continuing to However, we are in what's becoming price planned. will economy. to say, it's this of affecting more would future year, spending continue as is mentioned, is increase, wages consumers where challenged successful macro And new not are affecting due decisions, And everybody notably the engagements. and be periods environment wages and happening asking our not and in suppliers expanded of the pricing. those still And and we engagements efforts, most and how what those notably, very cycle

Jason English

Got it. That's helpful.

next Now some not year. on you asking preliminary but forward, gave I'm guidance know I for looking you for it's pieces us flow. free cash

the the capital of your about earn-out, talked pressured have the CARES free conversion all Act, working flow which burden, for year. cash You the ratio

mentioned more that to I conversion think of Is reason as next a flow believe free to you to there to year? there any expect that back get XX% a of cash percentage to eventually normalized you back you can't get EBITDA. XX%

Brian Stevens

believe I that back reason think to there believe we is we year. next there get do that can

happened this of $XX the look the that's Act, when this that won't Paying deferrals, payments a events CARES year. any think perfect year have next million you of talked about I and year example. you some that we at specifically,

paid another think that and can I we'd and than for already next year. of we what estimate it's payments significantly earn-outs than is our be we going lower earn-outs this to next normal significantly example expect out for that larger year year

demo with next anywhere continuing year. be but this to we going costs not what year going it's to have to are still ramp-up associated we had some Now build near

in normalized things to So, be line conversion next think level with that cash think I could give us X those alone the our flow reason more year.

Jason English

a maybe below, end, fair? low Maybe bit

Brian Stevens

Fair.

Jason English

issues control. lot clearly are Okay. Last out question. the these our affecting that are of business a of Jill,

First, Or tighten build, the you benefits in things are can control the structure face will labor of what control spillover impact there can't your to you do like already already this know And size right Because this you structure cost are a like pressure? labor done the and on that I the actions obviously. be Is more taken? belt can't can there external actions But rates, more of done? front? control lot. cost You you us realized Have on the can you cost of full business. there year? you've remind you there have all take you've that

Jill Griffin

Yes.

Yes, have going taking benefits already we've the yes, of do. actions And So continue can to to been there's actions. yes, we the are we realize taken. more we

let me of answers. So a bring context little bit to those

just Let's hiring. go critical. so that Since is to

talent XX%. to system. of what the this And And TA, labor. acquisition is a that implemented that speed implementation on higher cost focused very the software of we business of the up out about partial software talking year-over-year, to to talent of we're And the efficiencies are our We been one drive is seeing now and that as acquisition is year positives. drive we've

are there's We QX. over our a that And significantly net lean But historically with progress I and that team. making as software hires. an we improvement would operate very QX say and

is work Our the cheaper. industry faster, job do the to better, in

that wired way. are We

we although have internal a are with building that operating is that you we so question, to that very the that going continuing teams, the are stabilization to that We those to actions centralization not cost bet restructuring a labor optimization that increases. in the continuing until efficiently is can getting doing, effect individual course, of in we're 'XX. that team all our successful. continue are in team have there lean of each while, busy and that utilization ensuring more an all And that are be pleased will into momentum the we of of these We're have more we marketplace, your we there ensures associates, to the our recoup say, that are lag be company discussions. are to to we workforce I'm across and out of also pricing work we of taken the it's benefit the in continuing evolve directly will produce are and

Our clients well get we're encouraged and that efficient in and our control take then we again, said able the cannot and of the out to understand of you be system pricing. costs as and to ability both as to more customers dynamic by, our to where out it's test

Jason English

That's it the comment decision. and allocation pass really certainly then capital applaud I'll One on. helpful. I

next the pass I I'm think that's And done, right move. that, with the on one. I'll

Operator

from will And our be Stanley. next question Kaplan Morgan Toni from

Toni Kaplan

ask around mid XX% of count. about event levels. XXXX limiting think this Or I of stagnated should going sort not wanted factor recovery recovering thought, about It labor? I guess? to have Is I like still there demand of the sort the the How we would forward? is

Jill Griffin

Thanks, is availability think demand not Yes, This labor issue. to way that the this Toni. issue. is about a is a

very fast why We to project absolutely more. we particularly not our are did we to possibly supply labor in that from we issue I by the environment is are And QX, be And the as still was predict as that continue. again, understand encouraged QX demand difficult And be business that demonstration a increasingly not is, with that improvements. labor can not your point filling outpacing increase difficult. demand we increasingly this recovery. and that demand to to the

Toni Kaplan

side, ability sort that. And have to sense. That about commissions, pass ability of also think I some ask to with you to on do and I marketing makes know your the through costs. just wanted cost

guess, maybe understand to bit to impact think I has ability the some if merchandising, changed lag a to increased just I anything on a of from with of mixed. regard trying there's the costs? pass maybe and

Jill Griffin

is It ongoing been No. There change. not cycle. has this a

we've those between marketing So of take cost it have lag cost. there can where able realize to we business, in to the to faster somewhat increase we increased a in when correctly the merchandising that our price incur our increases than can or when is we price you're and recalling business, recover, cover been the

worse. the continuing to better has we exactly market because, in had just is as a dynamic been predicted. that isn't getting few labor And periods an cycle ongoing is it And hoped So It is recently be now and again, the difficult. same.

until just that cycle there and are we predict stabilization it will cost changed. this has it and recalling of continue is you and So not price correctly

Operator

be And Bank. the will from next question Alwy Faiza from Deutsche

Faiza Alwy

certain little Because services CPG perspective wanted What's and and follow be I might services on yes, just demand wanted around seems price. like? it CPG like environment your question up more just it a need the want what but have the wanted they customers bit intuitively, to feels you're your a seeing? it these to also like, at

So in certainly, chain supply perspective there give more we where sort on and that little so cycle. are of bit the us demand a are I'm curious, challenges,

Jill Griffin

are activities. And activities with are will asking our demo for and So in have worked where and tied services certainly have pressure. must a to and experience absolutely are, under fundamental very the our to optimistic just yes, place need us sustains and labor. course, get the to We are their our demand, retailer that with and retailers to not we the to partners, suppliers these specifically our demand to about invest our there they recovery. investment that is despite services strategy, in ensure And pressure, services because they I since just the our retailers our the my go-to-market And in-store services. of the so demonstration you're about willing go are think, answer. I therefore to suppliers

Faiza Alwy

quantify give a wage can. going year-over-year And on costs put type a by? of basis on how It sounds having that, us sequentially? your much if maybe you some through Can what are bit perspective are expecting? And whether increases. it's you you like you're of to Like can or more quantify pricing up you

Brian Stevens

a Yes, great think that's question. I

the demonstration continue again, very think, to increases to has as the that usually of the pricing the had the need we're we've the when is you been think say have and they've that I labor I retail they're to still those which that they whether it momentum wages pass that lag one to thing you far wage. market the a we've point perspective. as and largely that year-over-year a commission we The successful. we've some going into would we indication about along, in rate increases. productive. offset that overall And the for be retailers increases have what look earlier, us Jill's wage to it's mode as a stabilizes scale able when I it's It's we've that had been the and a if year, discussions increases time earlier, those going one it. we next at have have have show the had unfortunately, on have actual on catch-up year. look able and But lag gives in retailer-driven The been have It's with far to services, they to until X.X% from just going average those roughly have on as cover the discussions. and businesses, and be we're to manufactured those partnered then in touched we successful been to do because And declining continue

Faiza Alwy

And then just that wanted earlier the highlighted had you to talk the investments year. in about

about cost of And was maybe as more investments impression you my I So, well? heard discretionary. savings that these were some talking

respect So anything has like, changed investments? to through those just us with walk

Jill Griffin

discussing have renovation. So software difficult investment than off been some evolving converse just the talent, of the favor talent about wage our ways that had in the innovation specifically that of different backed past absolutely now, started anticipated. also been the acquisition for deliberately in more we renovation year, the And which X in example earlier as is investments of market I talent strategy and all and we've we continuing reasons when that innovation and categories to gave. we in point which invest became some but that earlier talked and were around in we than And more of

when those the So, items, some of on I I of while bucket say those and in back on we would and pull you're more we some careful, been and wage more methodical, the innovation of and much about renovation. would be focus have deliberate think talking discretionary talent

helping absolutely been some in continue our we've those And data-centric the of though, navigate today. that building. chain supply are because particular, our and Those they're retailers innovations, of to some critical services critically needed suppliers

So, right things very in needed we're now. investing that are selectively

Faiza Alwy

just then last And I if may, question.

that some really I you You environment? that that? What's business mentioned the new just because think was driving Is said of labor delayed.

Jill Griffin

because impacting our seeing this environment then our is of consumer clients impacting customers that and the of very current So anticipated we not come otherwise that that's current participants. of reflection engagements macroeconomic retailers we environment have the through. anticipated some by cases, in challenging what is of some that projects we and new delaying approach the a brands. we're believe And cautionary also the and In cases in and, is a are cases, to more certain all of the some some general

Operator

conference for and back remarks. question and would like Griffin any Jill over answer the turn to this our to I concludes gentlemen, Ladies session. closing

Jill Griffin

clients is customers while and not progress sincerely teams making as determinedness and the rebuilding challenging and recovering, we ongoing And our steadily thank so backdrop. a dynamic work, we customers. volatility. our our serving this want again nearly are associates remains you, this as in like. shoppers managing fast collaboration I our discussed competency of as as to albeit of demand would to very extremely force all Thank their difficult, large workforce amidst are Advantage discussed, we've conditions high have we by our core as I our in proud very not market hard navigate remain labor towards am of we Well, for operator. all and ingenuity, only labor

to for not blocks enhancement, weather forward actions. are only the you've heard, These for redesign, the decisions longer Advantage's are making to move technology future. right our business enabling well. the us current this term environment building savings, We but these Operational are strategic pricing as key efficiency also items

us Our them help continue rely channels to navigate the e-commerce and upon brick-and-mortar to scale. evolving clients at

right Our themselves I so our in better, forward. confident to look is entire faster could this push our market. us our ability and our now, than as the with quarter-over-quarter and provide remain model force manage a you important our efforts company throughout progress sharing large afternoon. your efficiently this on in worsening our quarter by time enables improvement March. labor you and despite year by to customers more forward We for business this Thank do the our exemplified to fourth of very very services call enterprise that to

Operator

The Thank conference attending now today's you presentation. has concluded. for

You disconnect. may now

Advantage Solutions (ADV) 12 Nov 222022 Q3 Earnings call transcript