Good afternoon and welcome to Advantage Solutions, Fourth Quarter and full-year 2021 Earnings Conference Call. Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Dan Riff, Chief Investor Relations and Strategy Officer for Advantage. Thank you. You may begin..

Thank you, Operator. Thank you, everyone for joining us on Advantage Solutions 2021, Fourth Quarter Earnings Conference Call. On the call with me today are Tanya Domier, Chief Executive Officer, Brian Stevens, Chief Financial Officer and Chief Operating Officer.

Jill Griffin, President and Chief Commercial Officer, and Dan Morrison, our Senior Vice President of Finance and Operations. During this call, management may make forward-looking statements within the meaning of the federal securities laws.

These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events and those described in the forward-looking statements.

Forward-looking statements are based on the company's current expectations and are subject to inherent uncertainties, risks, and assumptions that are difficult to predict.

Actual outcomes and results could differ materially due to a number of factors, including those described more fully in the sections titled Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operation, and elsewhere in the company's filings with the Securities and Exchange Commission.

All forward-looking statements are expressly qualified in their entirety by such factors. The company does not undertake any duty to update any forward-looking statements, except as required by law. Please note management's remarks today will highlight certain non-GAAP financial measures.

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

You may want to refer to the slides during today's call. This call is being webcast and a recording of this call will also be available on the website. And now I'd like to turn the call over to Tanya Domier..

Thanks Dan, and good afternoon everyone.

As I'm sure most of you have seen by now, we put out a press release today announcing that after more than three decades at Advantage and almost ten years as CEO, I've decided it's time for need to transition to an Executive Chair role and pass the baton to the next-generation of amazing leadership at our company.

The plan that we shared is the result of multiple years of succession planning with the board and I couldn't be more excited to share that Jill Griffin, our President and Chief Commercial Officer, will become our next CEO. Jill is a proven leader and she knows how to create value. She's a champion of Advantage culture and values.

She joined Advantage 14 years ago, and soon after replaced me as the leader of our marketing division, which she quickly incompetently grew into a multi-billion-dollar business. She has been my partner in building the business for over a decade. And I can't think of a better person to write the next chapter of the Advantage story.

It's been extremely rewarding to see her grow as a leader throughout her career and with Jill at the helm, I am grateful knowing that I leave this business in better and more capable hands and I am confident that under her leadership, the best is yet to come for Advantage.

When I transition to the Executive Chair role on April 1, I'll serve on the Board of Directors, and I will continue to support Jill and the team as they build the business.

I won't take any more time to discuss this announcement on this call, but I hope that you'll read our press release and I also hope that you'll read my letter to associates that's posted in the newsroom of our website if you'd like to learn more. So with that, we'll now turn to our results.

As I did on our first few calls, I'm going to start just by framing the business. Advantage Solutions is a leading provider of outsourced sales and marketing solutions to consumer goods, companies and retailers.

Our data and our technology-driven services, which include headquarter sales and retail merchandising, in-store and online sampling, digital commerce, omni -channel marketing, retail media, and others, help our brands and retailers of every size, give their products into the hands of consumers, wherever they shop.

And we talked a lot about the back deck, creating value on this platform is simple, but it's not easy.

At the most fundamental level, we're a trusted partner and a problem solver, we help our clients sell more while they spend less, we operate efficiently providing fuel for growth, we reinvest that attractive returns both organically and through tuck-in acquisitions and we deliver value. And as we do that, our platform compounds over time.

I'm so grateful to our associates for all the work that they do, and I just want to take this opportunity to publicly thank them. They're providing essential high return services, helping our partners, and helping consumer goods companies and retailers navigate out of this pandemic as we've talked about better and cheaper and faster.

Once I conclude my remarks today, I'll turn things over to Brian to talk about our financial results, and after that, we'll open the call for questions. Now I'll jump into the results. And to start, I'll share highlights from Q4 in 2021 and a high level outlook for 2022. First a few headlines from Q4's strong finish to a challenging year.

In Q4, we delivered solid year-over-year revenue growth with healthy low double-digit incremental margins, despite the headwinds from our service mix and wage increases. Our higher margin digital services grew at double-digit rates again. We saw continued recovery in businesses most impacted by COVID, with sampling events at 20% quarter-on-quarter.

We saw sustained at-home consumer goods demand, and at the same time experienced the pain of our client supply chain challenges. We enjoyed a robust rebound in Europe thanks to business reopening, but did see some tempering at quarter-end and into 2020 tied to COVID.

And we continued the difficult mission we've been discussing each quarter, investing heavily in recruiting and retention to stand up tens of thousands of new associates. Looking back over full-year 2021. 2021 was not a normalizing post - COVID year that we all probably expected.

Trends continued for longer in COVID aided business, and rebounds were slower in our COVID impacted businesses. Consumer purchase decisions were dictated as much by shelf availability as brand preference or price point.

We saw supply chain hiccup stymie effort to revive innovation pipelines, and shifting service mix, our leading recruiting costs, and rising wages net we can earn at less of our revenue growth to EBITDA gains.

In the context of this dynamic environment, the sales segment posted healthy revenue growth, but net, recruiting, and wage costs all constrained EBITDA growth. And our marketing segment rebounded nicely on steady rebuild in sampling and sustained strength in digital services.

And speaking of digital, our aggregate collection of digital services generated a high-teens share of revenue, and nearly a quarter of Advantage EBITDA, leveraging organic expertise and value accretive tuck-in acquisitions to help brands and retailers navigate an increasingly omnichannel world.

In retail, merchandising, headquarter for grocery and also food service, we saw some EBITDA pressure. International saw a nice recovery and was a pocket of EBITDA strength. And in the end, we met our commitment. We delivered the adjusted EBITDA that we targeted.

And we, like many others, underestimated a number of headwinds to include labor market disruption, inflation, and supply chain unrest. But we came through in the end delivering on our commitments and navigating ably in real-time. I really couldn't be more proud of the Advantage team for impressively posting very solid 2021 revenue and EBITDA results.

And I'm very grateful for their work in evolving our business with nimble, scrappy bootstrapping. We have an ideal foundation as we look ahead to a new normal and we plan to invest ambitiously and very thoughtfully to win. And with that as context, I'd like to drill down a bit deeper.

Here are some financial highlights from the recently completed fourth-quarter. Revenue continued to grow solidly in the quarter, up 21% year-on-year, driven by out sized growth in retail merchandising, continued out performance in digital, and ramping recovery in sampling and demonstrations.

And as our full-year guidance implied, Q4 adjusted EBITDA inflected nicely, growing 16% year-over-year despite the mix headwinds and despite the investments in labor and wages, as I mentioned earlier. Touching quickly on the segments in Q4.

Revenue growth remained strong in our sales segment, up 15% on year, driven by healthy rebounds in the COVID impacted international business and also in growth in retail merchandising services, and then offsetting some of our robust revenue growth, we had a decline in Foodservice.

Our sales segment, EBITDA, grew 5% as lower variable compensation expense and strength in international more than offset mix and labor headwinds in our headquarter, retailers’ services, and challenging decremental margins in Foodservice.

Moving to our marketing segment, the revenue rebound continued up 34% versus 2020 as in-store product demonstration at our largest sampling, client ramps up as quickly as we could staff demonstration teams, and our digital services continued to outpace robust e-commerce and market growth.

Marketing also saw solid EBITDA growth and operating leverage in the quarter up 39% on the year, and this was driven by strong profit growth in sampling and digital services.

Now that I've shared more color on Advantage's solid execution to finish 2021, I'm going to turn our expectations to 2022 at a high level, And I'll start by first talking about whats unchanged. We continue to help brands and retailers solve problems and win in the marketplace.

And today, that means helping to navigate record inflation, supply chain constraints, and shifts in consumer demand and marketing mix. As a culture, we continue to plan cautiously and execute relentlessly, placing a very high value on doing what we say and keeping our commitment.

As a team, we've taken a deep dive into our historical drivers of value creations and we've done a thoughtful analysis of both the challenges and the opportunities that have emerged post COVID, and had a humbling reality check as we evaluated structural shifts in the labor market from here.

The new normal -- whatever the new normal is, but in the consumer goods marketplace is likely to be different in many ways, especially for labor market. But our ability to evolve remains core to our DNA. The next stage of our evolution will come with opportunistic reinvestment. The reinvestment will really come in three forms.

First in talent, and we're focusing even more funding on talent, stepping up investments in wage and recruiting, and retention. And second in innovation, we're investing to scale adjacent and complementary services, especially in digital.

And then third, we're pursuing renovation, accelerating investment in infrastructure, in systems, in tools to help us to continue to drive productivity. And collectively these moves will strengthen and expand our franchise and widen our operating mode.

As we reinvest in this business and we continue to navigate an environment with a wide range of outcomes, especially around inflation and labor, we expect to deliver an Adjusted EBITDA range in 2022 of $490 million to $510 million.

The outlook reflects an initial budget for 2022 that showed modest year-over-year Adjusted EBITDA growth versus 2021, a performance that we could have chosen to pursue, but instead, our leadership and our board decided to pursue a compelling portfolio of high return reinvestment opportunities to position Advantage Solutions even better for the long term.

As I suggested, these investments include a mix of talent, innovation, and renovation opportunities. Within talent, we are investing to stay competitive on wage, share resources across our business units, streamline, recruiting, and boost retention.

And within innovation, we plan to deploy capital to accelerate growth in higher margin, higher return franchises most likely to thrive post-COVID with our most talented entrepreneurs. Within renovation, we're accelerating the pace that we refresh and revitalize our infrastructure foundation.

Renovation investments will enhance our productivity and improve our flexibility as an enterprise. And as always, we have a higher return expectation for our re-investments at Advantage.

Teams getting capital have submitted rigorous business cases, they faced intensive milestone in payback reviews, and will continue to share color on progress and payback with the investor community as we go. I'm sure many of you are going to have questions on our outlook and I will look forward to those and so will the team in a few minutes.

I also wanted to share a bit of color on our first quarter, which is one month to go. And I guess first the punch line is really not getting any easier out there. Supply chain challenges are bad to worse among brands and the out-of-stocks remain high, and this in turn pleases revenue and EBITDA and in large components of our sales segment.

Labor continues to challenge us as well. We're spending more to recruit and to retain, and we're battling turnover in both hourly and professional ranks.

We believe that the investment that I mentioned here will pay great dividends over time, and likewise, we expect that our efforts to realize pricing to fund these wages should move the needle again in 2022 as they did in 2021 because our services remain high, return on investment, and their need to have rather than nice to have offerings.

And we also have cost advantaged scale in delivering them even in the face of wage inflation. While we don't provide quarterly guidance, one might assume that Q1 adjusted EBITDA ends up closer to 2018 or 2019 levels rather than '20 or 2021. Finally, on the COVID front, we're watching things very closely.

We'll continue to expect the pandemic's disruption to get better as the state of health improves, but we remain nimble and we remain still prepared for a wider than normal range of outcome. And with all of that, I'll turn it over to you, Brian..

Thank you, Tanya. And good afternoon, everyone. It's great to be speaking with you. Tanya touched on the fourth-quarter and full-year highlights, so I'll share a bit more color at the segment level. In Q4, sales segment revenue of $631 million was up 15% year-on-year. Segment EBITDA of $94 million was up 5% year-on-year.

Marketing segment revenue of $402 million was up 34% year-on-year, segment EBITDA of $60 million was up 39% year-on-year.

Breaking down the drivers of our revenue growth in Q4, about 40% came from growth in sampling and demonstration, another 20% came from market growth and share gains in our high performing retail merchandising services, including an acquisition that we made in September, and continued digital gains drove another 12% of our growth.

And drilling a bit further into the drivers of our EBITDA growth in Q4, marketing gains drove just over three quarters of the year-on-year adjusted EBITDA growth, lower performance-based compensation, profit recovery in sampling and demonstration, and solid incremental margin in digital services drove marketing profit growth in the quarter.

On the sales side, international profits and lower performance-based compensation more than offset adjusted EBITDA headwinds in our headquarter, retail, and Foodservice areas. Turning to full-year 2021, sales segment revenue of $2.324 billion was up 13% year-on-year. Segment EBITDA of $363 million was up 1% year-on-year.

Marketing segment revenue of $1.278 billion was up 17% year-on-year. And segment EBITDA of $158 million was up 24% year-on-year. As we suggested, full-year adjusted EBITDA margins, land squarely between 2019 pre - COVID levels and 2020 elevated levels.

Breaking down the drivers of our revenue growth in 2021, 25% came from strong year-on-year gains of our high-margin, high-return digital service and solutions. Just under 30% came from marketing growth in share gains in our high performing retail merchandising services, just under 20% came from recovery in our international business.

And just over 15% of our 2021 revenue growth came from accelerating recovery and our sampling and demonstration services.

Drilling a bit further into our drivers of our EBITDA growth in 2021, mortgaging gains drove nearly 90% of the year-on-year adjusted EBITDA growth, strong digital growth explain the bulk of the marketing segment adjusted EBITDA gains.

On the sales side, international profit gains and lower performance-based compensation more than offset adjusted EBITDA headwinds in our headquarter, retail, retail merchandising and Foodservice areas. Turning now to some balance sheet items, our net debt-to-EBITDA finished the quarter at approximately 3.7 times.

Our debt profile is healthy, we have no meaningful maturities in the next four years. At the end of Q4, our total funded debt outstanding was approximately $2.1 billion. A summary of our debt and equity capitalization can be found on Slide 9 in the supplementary slides for Q4 results that is posted on our Investor Relations website.

Touching briefly on a few items related to our 2022 outlook. First, I want to reiterate that we're moving aggressively to realize price in our essential need to have services where we're taking up wages. That initiative is being led from the top and grounded in hard facts about labor inflation on ROI.

Our guidance is somewhat conservative about pricing success, but early signs are encouraging.

Second, on free cash flow, after a year of reinvesting in working capital stand up COVID impacted businesses, we expected a more normal year of free cash flow conversion in 2022, it's safe to assume that one quarter or more of our adjusted EBITDA converts to equity free cash flow for the year.

And finally, on leverage, given our adjusted EBITDA guidance and plans to reinvest through 2022, we expect net debt-to-EBITDA to the year slightly up versus 2021 levels. We intend to continue our deleveraging path in 2023 and beyond. And with that, I'll turn it back over to Tanya..

Thanks, Brian. We're proud of how we navigated a tumultuous 2021, and we're excited about our plans to invest in both renovation and innovation in 2022 and beyond.

As a team, we've grown this business through seismic shifts and meaningful challenges and our 2022 adjusted EBITDA guidance gives us a healthy pool of funds to generate attractive returns width and a very strong foundation that we can compound from.

We're grateful for your interest and your support as owners and prospects and we're eager to share more thoughts and perspectives and insights today and also in coming days and much more deeply in a future Analysts Day.

Dan, any closing thoughts before we open it up for Q&A?.

Thanks, Tanya. As many of you know, ADV shares have been weighed down by tough performance across the vast majority of recent leasebacks. We're also not blessed with a readily accessible universal public comparable or abundant share liquidity.

But we do have a long term history of value creation, a high growth, high returns sets of of digital services that are accelerating out of COVID, and a thoughtful plan to reinvest in labor, innovation, and renovation to accelerate our sustainable growth rate, expand our margins, and boost our returns from here.

And that attractive profile is trading inside of nine times, a conservative adjusted EBITDA guidance level, and at a mid-to-high single digit equity free cash flow yield. I like the asymmetry as an owner and as an operator at Advantage. With that, I'd now like to ask the Operator to open the call for questions..

We will now begin the question-and-answer session. [Operator Instructions] If you are using a speaker phone, please pick up your handset before pressing the keys. [Operator Instructions] At this time, we will pause momentarily to assemble our roster. Our first question comes from Jason English with Goldman Sachs. Please go ahead..

Hey, good morning, folks. Thanks for slotting me in, and Tanya, congratulations on a longer lustrous career there, and I'm going to sorely miss working with you on a regular basis or at least having our colorful conversations quarterly..

Me too..

I don't know if Jill's there, but if she is, congrats, Jill, on the new elevated employment, well-earned, well-deserved..

Thank you so much..

Jill, now that I definitively know you are there. We got a new guidance out today, it's been delivered by Tanya.

Do you feel ownership in this guidance for fiscal '22?.

I do, fully..

Now to help me understand some of the puts and takes, you gave three buckets for the reason why the EBITDA is lower than certainly you would expect it collectively many months ago, and something we had expected talent, innovation, renovation.

Talent and renovation don't sound like high return investments, they sound like rebased cost to compete to me. Am I wrong in that? And innovation sounds like it could be the area where you could actually get some positive return.

How much of that investment is going into innovation?.

I'm assuming Tanya, you want me to take this? I'll jump right in and give my perspective and then Dan, I'm going to ask you to step in when we get to what we can say about quantifying or not, but Jason, I'll just address generally the strategy going forward, which echoes a lot of what Tanya has already shared.

For sure, there is a bucket of this that is defense and a bucket that is offense, and you're seeing the wage pressure, the supply chain, the inflation that we are facing.

And it is absolutely a challenge, but I also want to say that managing labor has always been a primary strength of our business and it's why the largest brands and retailers outsourced to us over time.

So while we actually need to increase wages we're very confident in the strategies that we have in place to drive efficiencies, new systems, structures, talent sharing, as well as take price to work on that. So you're right in that.

That isn't a future growth bucket of investment, it is a required investment given the headwinds we're all facing and we feel really confident in our strategies to address it. Now turning over to the innovation, we have still many great seeds that we have planted both pre -pandemic and during the pandemic that now we are going to lean into.

These are new category adjacencies, a lot of the areas that we've been talking about with you over the last couple of years in E-commerce and data, tech, and retail media, and we are very excited about being able to lean in harder now that we're coming out of some of the daily urgencies that the pandemic was driving our focus on..

And let me come back with I guess one more. A lot of these seem like things that you would hope that you could price for., but I'm cognizant that this seems like almost an every couple of year type event where something happens in the marketplace that causes your profitability to be rebased lower.

Whether it'd be pressure from the manufacturing community on one era, whether it be pressure from Walmart, or the bill that they gave you and your need to address that through acquisition or now labor cost. All of them have resulted in a reset low on profitability that you've been unsuccessfully able to pass through or price to.

Is there any reason to believe that this is different, that this isn't just a structural reset that in the end you're not going to be able to price for this. This is a lower enduring profitability level for the business..

So I think, Jason, those are really good questions and we know that the labor markets are as tough as they've ever been and we are raising wages in an incredibly competitive market.

And I think if you look to last year and you look at how we were able to take price, we just have not been able to take it fast enough because we have to invest ahead of price. So where does this settle out? Your guest is as good as ours. All we know is we've evolved with the business. We've been able to take value in the business.

If you look at what we've been able to do in the sales business during COVID and increase our margins through digital services, return now a quarter of our profit. All of those things are very Important because they show our ability to evolve. Will there be things that come up in the market from pricing to retailer programs? Yes, they will.

But specifically, when we're talking about investing in talent, we actually think it does have good returns and we believe we will be able to price over time but we're giving ourselves that room. And that's why we've taken guidance down because there are a lot of uncertainties in wage and it's been really hard to get it right.

But talent is our most valuable asset and we have been able to earn on that over time. So is it easy? No. Is it dynamic? Yes. But we're going to keep doing what we do, which is invest to grow..

Understood. Thank you very much. I'll pass it on..

Again. If you have a question, [Operator Instructions] please standby as we pull for questions. Showing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Tanya Domier for any closing remarks..

Thank you all very much for your participation and for listening to us today, and we look forward to following up with you in our sessions. Have a great night, take care..

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