Good afternoon, and welcome to Advantage Solutions Second Quarter 2021 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 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 Advantage Solutions 2021 Second 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 Riff, 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 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 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. Good afternoon, everyone. As I did on our first few calls, I'd like to start by framing the Advantage Solutions business. We're the leading provider of outsourced sales and marketing solutions to consumer goods companies and retailers. We have a very strong platform of competitively advantaged services like headquarter sales, retail merchandising, in-store sampling, digital commerce and shopper marketing. And we do this for brands and retailers of 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. Creating value on this platform is simple, but it's 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 acquisitions. As 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. They 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'll 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 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 up by four times year-over-year in June, and more retailers are ramping from July forward. We're also seeing continued strength in at-home consumer demand, with both volume and price trends helping our sales segment. Also encouraging is a handful of higher-growth and higher-margin franchises like click-and-collect and curbside sampling that scaled meaningfully during COVID and has sustained their strength year-to-date. We've seen our acquisition and new business pipelines still 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 up 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 uncertainty and change, are when our compounding platform at Advantage really shines. We're navigating an omnichannel world that's 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 return to a retail environment. With our portfolio of essential services, we continue to help consumer goods companies and retailers navigate an 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, unprecedented inflation, and the need for sticker price hikes and more surgical promotions, differing 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 rebounds 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 mix, investment in our merchandising workforce, 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, as COVID recovery continues, comes at lower margin, and the modest expected normalization in headquarter sales services against last year's peak pantry loading was a slight headwind. Marketing saw healthy EBITDA growth with a steady return of in-store sampling and digital growth at strong incremental margins. 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 levels. We expect volumes to normalize further as we head back to in-person learning and at least hybrid work this fall. We're also seeing consumer goods supply chains stabilize, innovation and product news starting to return, price hikes tied to commodities and wage inflation flow through and promotions remain muted. In product demonstration and sampling, we continue to receive strong support in our rollout, and consumers are very pleased to see the 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 400,000 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, doesn't happen overnight. And it's complex and costly. We continue to invest to recruit, train, and retain in a challenging labor market that may not normalize immediately. We're 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 variant very closely. We continue to expect the pandemic's 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'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 this raised outlook in a wide range of macro scenarios. The guidance range continues to assume three key things. First, in-store sampling builds back towards pre-COVID levels in the second half of 2021; second, at-home demand reverts to pre-COVID levels in the back of the year; and last, Advantage invests in future-focused practical solutions to help clients navigate post-COVID recovery in areas like sampling innovation and digital commerce and trade promotion optimization through our pioneering new partnership with Eversight technology. Looking out a bit further, we'll be entering 2022 with a mid-single-digit profit lift above 2019 pre-COVID 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 in our great team and continue 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 three prior quarters of minus 20%, minus 16%, and minus 10%, respectively. Adjusted EBITDA of $122 million was up 8.9% year-over-year overall, a healthy demonstration in sampling recovery with events up 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 3x 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 a 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. I'm excited about our future. We're well positioned to win under multiple recovery scenarios. We serve a historically stable and resilient consumer goods end market, a market that's just weathered a once-in-a-century disruption and is emerging stronger. For us, this means tailwinds 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, accelerated omnichannel service adoption during COVID that we believe likely sticks and continues to grow like online grocery pickup and delivery sampling, and growth and adoption in our margin-accretive digital and e-commerce 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. Tanya touched on the second quarter highlights, so I'll share a bit more color at the segment level and speak again to our full-year guidance raise. As mentioned earlier, we grew adjusted EBITDA 8.9% year-over-year despite investment to stand up the COVID-impacted franchises with very large labor forces. Our sales segment grew 22% year-over-year to $561.6 million, up 21.2% organically. Retail and merchandising services and recovery of the COVID-impacted international businesses drove a majority of this growth. Sales 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 four prior pandemic-impacted quarters of minus 59%, minus 49%, minus 39%, and minus 31%. Adjusted EBITDA marketing was up 47.3% year-over-year to $32.4 million. As demonstrations and sampling return, non-economic revenue tied to that will normalize the marketing segment margins a bit, but durable improvements to the mix of services in the segment from, for example, growth in digital e-commerce sampling, will help the segment margins normalize to higher than pre-COVID levels. Turning to overall margins. Second quarter adjusted EBITDA margins came in at 14.4%, down 310 basis points from elevated COVID-19 levels in 2020, but up 150 basis points from 2019. The year-over-year margin drop is primarily attributable to the normalizing revenue mix as lower margin services continue to recover from COVID, and we invest to stand up labor in our retail merchandising and sampling services. Now moving on to our capitalization. As Tanya indicated, our net debt-to-EBITDA finished the quarter at approximately 3.9x. Free cash flow should ramp solidly with profit growth in the back half. Our deleveraged balance sheet will yield meaningful cash interest savings of over $70 million on a pretax basis in 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 $100 million of the ABL borrowings that were outstanding following the close of the leaseback transaction. A summary of our debt and equity capitalization can be found on Slide 8 and the supplementary slides for Q2 results that were posted on our Investor Relations website. Now turning to our revised fiscal 2021 outlook. As Tanya noted, we are raising our fiscal year 2021 adjusted EBITDA guidance range of $520 million to $530 million. Some items to 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 M&A opportunities is robust. We've closed a handful of deals, largely high-growth, high-margin specialty agencies, and have more under LOI. We continue to make room for a modern amount of medium-term investments through the P&L this year, betting 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 in 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 Tanya.

Thanks, Brian. 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 to a data-intensive one, 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.

The first question comes from Jason English with Goldman Sachs.

I have a couple of questions. Tanya, you mentioned that the outlook for the second half depends on two factors: a reversal of state home benefits impacting sales and a recovery to pre-COVID levels in sampling. I would like to quickly assess what you are observing in real time regarding both of these aspects. How much visibility do you have regarding the recovery in sampling? And how much visibility do you have about the changes in 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 throughout the pandemic, and we're seeing sampling rebound and retailers planning to bring sampling back and consumers delighted to see sampling. And the only moderation in that is our ability to stand these platforms up quickly. So we're seeing great interest in rolling out sampling and really positive response, and we're 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 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 sales business, as you know, with elevated at-home demand, you get tailwinds. And when people start to go out, we've seen moderation. And I think the other thing that we've seen is in our sales business, in particular, some of our lower-margin businesses are ramping up. We won some new lower-margin businesses in single-source retail. So that's probably a theme that we'll be talking about a lot, standing up workforces of large crew, not simple, not easy, something we're built for. But those are the puts and the takes in the business, very similar to what we talked about last quarter. And our outlook is the same that you know what, we've got these natural hedges in the business and exactly what we've said in terms of moderation at at-home. And sampling returning and restoring back to normal is what we've expected, and it's where we are today.

Yes. No, I hear you. It actually seems like you could be entering a period where the at-home benefit is sustained for a while and sampling recovers. But as you mentioned, it's difficult to stand a step-up. And as we look across multiple industries, we continuously hear labor shortages, labor inflation, wage increases, et cetera. You have the core in outsourced labor company. How much is this putting a 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 an ongoing basis to more durably increase the cost for you to serve?

Great question, and we watch this 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 a very, very similar situation in that it's much more heavily weighted towards recruiting expense as we stand up our large demo workforce and our new sales businesses. And when we're seeing the need for wages to be inflated, it's 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 employers to stand up this business and at a time when elevated unemployment benefits are not helping us. So it's a challenging environment. It's one 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, they're in isolated markets. And as you know, we already pay 30% more than minimum wage across our hourly workforce. And so that's basically what we're seeing.

Yes, that's helpful. For my last question, could you provide more details about the new agreement regarding trade spend? Specifically, how does this relationship function, and what growth opportunities do you anticipate from it?

Well, as you know, we try to use our position as the strategic intermediaries to really see where there are problems in the industry. And we can't think of a bigger one than optimizing trade promotion. And I know this is something that you thought deeply about in 2015. And we've looked at numerous ways to tackle this issue. And we really believe that the Eversight approach and methodology is one that we can really bring to bear with our clients and customers. It's something that we've looked at for a long time. When Dan Riff came on board, he really pounded the table on the same opportunity. And as an executive team, we align that this can be a big difference maker in our business. We're really excited about it. And I think Dan's so passionate about it. I'll turn the floor to him to talk about why he thinks it's such a game changer, but we're very excited about it.

Thank you, Tanya. Jason, I recall reading your article back in 2015 and seeing this as the ultimate goal for consumer packaged goods spending. I was surprised to find that it was five times larger than the marketing budget and that half to two-thirds of the operators were eroding economic value. This was primarily due to a rinse-and-repeat strategy relying on past promotions, many of which have become outdated and habitual. We have a client who has maintained the same pricing structure for 25 years and is eager to explore this opportunity with us. The post-COVID period might present the perfect chance to address this. We notice that there are over 15 months without many promotions to draw upon, which reduces the likelihood of outdated strategies. I was excited to join this effort. Like you, I know David Moran, the Co-Founder of Eversight, and this represents a critical unmet need for clients. The challenge lies not in the willingness or awareness but in the execution and implementation in the field. Eversight's tool excels at generating ideas through real-time experimentation and testing, and Advantage will effectively implement these strategies at the shelf level with CPGs and retailers. I believe this partnership is powerful. Initially, we plan to implement this with a small group of clients in a pilot program to test the combination of Eversight’s tool and Advantage in the field. We believe this represents a more effective approach to promotions that does not rely on historical data, particularly during a time of record inflation that necessitates both pricing strategy and promotions. Our clients have reported delays in receiving sticker pricing, which are now extending from 60 to 90 to 120 days. Hence, they require immediate solutions, and a promotional strategy may be exactly what they need.

The next question comes from Toni Kaplan with Morgan Stanley.

Tanya, 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 been sort of a little bit more recent, maybe the last couple of weeks, versus showing up in the quarter, but just any update sort of real-time 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 plans that we have today are grounded in the deep work that we're doing as we collaborate with clients and customers. And at this point in time, we have not seen any changes. We've learned a lot over the past one and a half years about how to wrestle with challenges, while safely and responsibly bringing back these services that we had to 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 one and a half years, developed and executed a playbook with our retail partners that allows us to pivot when we need to at a local level where health and safety warrants it, which really supports a flexible return to operation strategy that enables the continued progress towards full 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 margins. 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. Also, if you could give us 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.

Yes, absolutely. As business normalizes, you'll see different margins, but maybe I can just make a couple of comments on that. Marketing, as you expected, is driven by a return in in-store sampling. And remember, that's a lower-margin mix, but sales is probably where the explanation helps on margin. A couple of things under the surface driving in sales, the margin, and first, it's the mix of revenues. So the dollars that are driving the revenue growth in the quarter were from structurally lower-margin businesses related to our recovery in our international business, which is lower margin, and in our single-source retail merchandising business. And then offsetting those lower margins were expected normalization of our traditional headquarter sales businesses at high incremental margins. So if you remember, the second quarter of last year, it was our peak pantry loading in the sales business. So while there was modest expected year-over-year moderation in the quarter, this business still remains elevated versus 2019 pre-COVID levels. And then the second thing that I think is important is the investment in our workforce 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's happening. So we invested in our retail merchandising workforce to make sure that we can recruit and deploy associates to serve the growing business. And you should also note, and Jason and I probably should have mentioned this, too, that we're working with our partners to take targeted price increases where needed to support the investment related to ongoing wage. And then to a lesser degree, on margin, not significant, but some headwind from year-over-year public company expenses that got allocated to the sales segment, but predominantly mix. Hope that's helpful.

The next question comes from Sameer Kalucha with Deutsche Bank.

My question is more around the sampling events. If I look at the trend, it was improving monthly from January to March and then kind of seems to have flatlined during the second quarter. I was curious if it's more of capacity constraints or is it more demand that is driving this flatlining. And any color you can provide on how to break up the two factors, if at all?

So first demand outpaced the supply for sure. But second, I would direct you to look at quarters, not months. The months get squiggly. And in any given year, we have squiggly months, you never know what drove event volume in the prior year. Sometimes there are large thematic things, particularly with the largest retailers that skew that. But what we really are focused on is event count is growing. On 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 and our experience and our results and leveraging technology and expertise. We're also pleased to see additional retailers restart in-person demos and sampling in July, and we're seeing a healthy ramp that should continue into the next quarter and the second half in general.

Got it. And the next one probably more like a strategy on the e-commerce front. Traditionally, say, health care and grocery have been like the lower penetration, and they seem to have gotten some bump from the COVID times. As these COVID drivers normalize, so what are the strategies you're using to drive that penetration higher? Or what's going to drive the growth on the e-commerce front, especially in the categories that you participate in?

Our strategy is to assist consumers in reaching brands wherever they are. The online services we expanded during COVID have allowed us to make significant progress in a short time. These advancements are proving to be effective, and we are experiencing increasing margins and rapid growth in each of these online services, which complement our physical stores. As we have indicated before, these are additional options, not replacements. This is why we are enthusiastic about building our in-store labor force and continuing to replicate our efforts to meet shoppers wherever they may be.

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

Sorry. I had to get off mute, one second. I apologize. I'll put my fundamental investor hat back on to wrap up, actually. I stated some of this before, but we're in the same spot. Advantage is a proven compounder. We've got healthy margins and returns, trading inside of 10 times consensus '22 EBITDA. That's a wide discount, as most of you know, to consumer goods end markets that we serve and high-quality services businesses that we arguably should be compared against. In the consumer realm, we are an essential 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 category from one that a lot of us understand pretty well, beverage bottlers, except we have better growth, better margins and better returns. These are publicly traded assets around the world that trade for four turns or more than we do. People have come to understand their 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 and innovation alongside them. We continue to believe that more awareness and more liquidity will close our gap to current fair value, and with continued prudent reinvestment in things like trade promotion, optimization and sampling innovation, we'll unlock future value with this great team. Thanks, everyone, for joining us. Please don't hesitate to reach out for one-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.