Greetings and welcome to the Advantage Solutions second quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. If anyone should require operator assistance during the conference, please press star 0. As a reminder, this conference is being recorded. It is now my pleasure to introduce Ruben Mayer, Vice President of Investor Relations. Thank you, and Ruben, you may begin.

Thank you, Operator. Welcome to Advantage Solutions' second quarter 2025 earnings conference call. Dave Peacock, Chief Executive Officer, and Chris Crowey, Chief Financial Officer, are on the call today. Dave and Chris will provide the prepared remarks, after which we will open the call for a question and answer session. During this call, management may make forward-looking statements within the meaning of the federal securities laws. Actual outcomes and results could differ materially due to several factors, including those described more fully in the company's annual report on Form 10-K filed with the SEC. All forward-looking statements are qualified in their entirety by such factors. Our remarks today include certain non-GAAP financial measures, which are reconciled to the most comparable GAAP measure in our earnings release. As a reminder, unless otherwise stated, the financial results discussed today will be from continuing operations and revenues will exclude pass-through costs. And now I would like to turn the call over to Dave Peacock.

Thanks, Ruben. Good morning, everyone. Thank you for joining us. Before we get started, I want to thank our teammates for their continued commitment to successfully serving our clients who continue to navigate ongoing market uncertainty. Our second quarter revenues of $736 million and adjusted EBITDA of $86 million were down 2% and 4% respectively from the prior year. Our performance was in line with our internal plan, and we are pleased with the sequential improvement in the business relative to the first quarter. We made solid progress toward resolving the first quarter staffing shortfall, enabling both our experiential and retailer services teams to increase execution volume. This operational improvement contributed to year-over-year adjusted EBITDA growth across both segments. As of July, staffing has largely returned to desired levels for the second half of the year, and we are confident in our ability to continue to recruit and retain personnel to meet client demand. Our financial results continue to be impacted by a client loss in branded services last year, which accounted for the entirety of the company's EBITDA decline. Additionally, we continue to invest behind our transformation initiatives, which weighed on profitability in the quarter. Both of these items will be mostly lapped on a year-over-year basis starting in Q3. Given our scale serving over 4,000 clients and retail stores operating in over 90% of zip codes, we have a unique perspective on the U.S. consumer. In recent months, we surveyed thousands of shoppers alongside a broad cross-section of our CPG and retailer clients to gain a deeper understanding of the evolving macroeconomic environment. While consumer health remains pressured and value-seeking behaviors remain prevalent, our findings reveal several actionable insights. Specifically, our merchandising supply chain, product sampling, and private brand development services are essential offerings to help clients in this environment and optimize their return on investment. Retailers tell us that they lose nearly 40% of potential sales when a product is not carried or is out of stock. Our merchandising teams deliver a strong ROI for CPGs and retailers by ensuring that products are properly placed and advertised at the right price points, in-store signage is optimized, and that there is an ample supply of product on shelf and on display. Nearly 65% of retailers told us that their supply chains are evolving in response to trade disruptions. As part of our end-to-end retail services, we provide a full suite of logistics services that help clients diversify their sourcing and deliver products to the store shelves consistently and efficiently. Finally, 85% of retailers in our survey are prioritizing private brands to address channel shifting and shopper preferences. Our market-leading private brand advisory and execution business called Damon offers end-to-end capabilities with access to over 6,000 supplier partners and leading private brand design capabilities, having won over 30 awards this year for best-in-class work. These are just a few examples of tailwinds in parts of our service portfolio that are driving a healthy new business pipeline. We are engaging with prospective clients and demonstrating our value proposition to generate attractive returns. We are encouraged by the success to date renewing existing relationships and securing new service wins as we continue to work through a longer than normal sales cycle. For example, we recently helped a client, AG1, with their transition from exclusively direct-to-consumer to a national entry into retail. We partnered with them for a retail launch earlier this summer through our branded services brokerage team, while also supporting them with an aggressive sampling program through our experiential team. The results have exceeded expectations, positioning AG1 for future success at retail. This shows how we can leverage the different parts of our business to drive sales for our clients. Turning to our segments and beginning with branded services, clients continue to prioritize cost optimization as they adapt their supply chains, manage elevated input costs, and respond to evolving channel shifts. This has resulted in more insourcing of select services, a reduction in order volume, and a pullback in sales and marketing investments. These headwinds have mostly impacted our brokerage and omnicommerce marketing offerings in the first half of the year, while demand for our merchandising and supply chain services has remained steady. As we enter the second half, we expect sequential improvement for our branded services as we lap client exits and losses realized in the first half, the materialization of new business wins, and streamlined operations as our transformation enabled technology and analytics advancements are driving faster and more efficient processes in this area. Within experiential services, the recovery from the staffing shortfall in Q1 led to a year-over-year increase in events executed in the quarter. Events per day grew approximately 1% and were up 5% excluding the loss of a client last year who chose not to sample in-store any longer. The demand for sampling and other experiential projects remains favorable for the second half of the year, particularly for our largest clients. This is typical as seasonality favors the second half, and we are optimistic as some of our centralized labor management efforts are beginning to help us drive talent attraction and retention. In retailer services, recovery and staffing levels and improved project activity led to growth in the quarter. Retailers are continuing to seek our merchandising services at increasing levels due to their own labor shortages and the efficiency we bring in a more variable work environment. While staffing levels support our plan for the second half of the year, we will face a difficult prior year comparison and unfavorable project timing in Q3, but expect a more favorable comparison in the fourth quarter. We continue to invest in delivering a higher ROI and service level for our CPG clients and retail customers. We remain on track to complete the implementation of our data architecture and system foundation by 2026. These projects are helping us deliver value today to our clients. We are delivering category insights and intelligence at an accelerated rate to unlock growth opportunities through our data lake-powered dashboards, deploying image recognition technology for more than 1,000 brokerage clients across 800-plus subcategories. This will help our in-store and sales teams work faster and with more accuracy as they leverage better insights in distribution and product assortment decisions. Specifically, we are integrating retail point-of-sale, shopper panel, geodemographic data, as well as advantages proprietary in-store execution data to help our teams identify distribution opportunities, competitive gaps, and monitor innovation performance in almost real time. This helps clients maximize outcomes and retailers meet shifts in shopper behavior. In addition, our account managers can now evaluate promotional performance at a highly granular level, helping CPG companies maximize their return on trade spend and drive higher ROI per dollar. As we look to the future, we're advancing the development of our new Pulse system, an AI-enabled end-to-end decision engine designed to elevate the speed, precision, and impact of commercial decision-making across sales and merchandising. This next-generation platform will seamlessly integrate Advantage's data intelligence, including unique retail data with dynamic, real-time capabilities, augmenting our team's ability to anticipate demand, prioritize actions, and drive efficiency across client workflows. Shifting to our people and processes, we are continuing to invest behind implementation of a centralized labor management model that we expect will be operational starting in early 2026 and Workday's human capital management system that will be available in 2027. This new strategy for centralized labor management is designed to yield benefits in three areas. First is labor utilization. We remain committed to achieving at least a 30% lift in available hours for teammates. The number one concern our teammates have when I speak to them is the inability to get enough hours with us. More available hours will increase retention and productivity with a more tenured staff. The second is improving teammate experience, which we expect will create a win-win scenario for our teammates and clients as we drive retention even higher. This is manifest in the speed of our application to hire process all the way to route scheduling. Third is efficiency. We are investing in technology enablers to drive improved teammate and customer engagement. One example is the deployment of AI-assisted staffing across our retail customers. The pilot program underway is validating these objectives as teammate utilization and retention rates continue to outpace non-pilot market performance. We remain on track to continue scaling and refining the pilot program to support the broad-scale rollout of the centralized labor model throughout the second half of 2025 and early 2026. Taking current market conditions into account alongside our investment and operational execution plans, we are reaffirming our 2025 guidance, projecting revenue and adjusted EBITDA to be flat to down low single digits compared to the prior year. The confidence in our outlook comes from favorable demand signals for experiential and retail merchandising services, as well as expectations for sequentially improving trends and branded services. The majority of our business is well positioned to partner with clients as we deploy our enhanced capabilities to strengthen our value proposition in other areas. We also expect a reduction in year-over-year shared service costs in the second half of the year, supported by savings derived from leveraging the IT system upgrades. As Chris will discuss in more detail, we expect cash generation in the back half of this year to be above normalized levels, excluding the unique year-end payroll timing shift from January to December, as we transition from the heavier part of the transformation investment to the acceleration phase and continuous improvement. Our business is designed for efficient and consistent cash generation, and we expect to return to our typical net-free cash flow conversion rate of at least 25% of adjusted EBITDA next year and beyond, as our transformation improves our services and modernizes our processes for more consistent and efficient results. I'll now pass it over to Chris for more details on our performance and guidance.

Thank you, Dave, and welcome to all of you joining the call today. I will review our second quarter 2025 performance by segment, discuss our cash flow and capital structure, and expand on Dave's guidance commentary. In branded services, we generated $257 million of revenues and $34 million of adjusted EBITDA, down 10% and 21% on a year-over-year basis, respectively. This segment continues to experience challenges, namely within brokerage and omni-commerce marketing, which we are working expeditiously to address. While some of the declines are business-specific, including the aforementioned client loss from last year, which accounted for more than one-third of the segment EBITDA decline, we also continue to combat a difficult macroeconomic backdrop. In experiential services, we generated $249 million of revenues and $26 million of adjusted EBITDA, up 6% and 14% on a year-over-year basis, respectively. The recovery in staffing levels enabled our teams to execute more events in the quarter. Events per day increased by 1% versus the prior year and were up 5%, excluding the client loss last year. Execution rates were approximately 93% on greater volume. As a result, margins returned to expected levels, expanding by approximately 80 basis points year-over-year to 10.4%. In retailer services, on a year-over-year basis, revenues were down slightly to $231 million, and adjusted EBITDA grew 8% to $26 million. Merchandising activity increased in the quarter due to improved staffing levels, an uptick in project activity, including a pull forward from the third quarter, and diligence in pricing to manage rising labor costs. Partially offsetting these items was softness in advisory and agency work, where we were impacted by the continued unfavorable channel mix. I would note that for both experiential and retailer services, higher shared service costs and a higher allocation of those dollars weighed on profit growth in the quarter. Moving to balance sheet and cash flow, we ended the quarter with $103 million of cash on-hand, reflective of a heavier use of working capital in the first half of the year. As a result, we did not repurchase debt or shares in the quarter. We received $22.5 million in proceeds on July 31st, related to the first of two deferred purchase price installments for June Group. With cash on hand, these proceeds, expectations for stronger cash generation in the second half of the year, and approximately $400 million available on the untapped revolving credit facility, we have ample liquidity to operate the business in the current macroeconomic climate while investing for growth and opportunistically paying down debt. Our net leverage ratio was approximately 4.6 times of adjusted EBITDA, including discontinued operations. We expect this level to taper over the balance of the year. Turning to cash generation, we ended the quarter at approximately 70 days of sales outstanding, a one-day improvement from the first quarter, as cash collections began to recover after the cutover to the new ERP system. The vast majority of the company is now on the new system, and we expect DSOs to decrease in the second half of the year. CapEx in the quarter was $2 million due to the timing of transformation investments and a significant undercapitalization of labor. We now expect CapEx to end the year in the range of $50 million to $60 million below our original guidance. Adjusted unlevered free cash flow was $57 million, and the conversion rate was 66%, driven by the lower-than-expected CapEx. As Dave highlighted, we are maintaining our full-year guidance. We expect shared service costs to decline year-over-year in the second half of the year. Headcount has decreased by approximately 8% in finance and IT since the end of last year due to the use of automation and technology to streamline back-office functions. We also expect restructuring and reorganization costs for the full year to decline by roughly 50% compared to 2024. Branded services will remain under pressure, but we anticipate that the top line will start moving towards stabilization by the end of this year and into early 2026. From a seasonality perspective, the second half of the year is the peak season for experiential and retailer services. As Dave mentioned, retailer services faces a difficult third quarter due to project timing and year-over-year discrete comparison factors. but we do expect a favorable comparison in the fourth quarter. Full-year adjusted EBITDA margins should be mostly in line with the prior year during this period of transformation investment. We continue to expect 2025 adjusted unlevered free cash flow to be over 50 percent of adjusted EBITDA. Cash generation is expected to improve in Q3 and Q4 from an artificially low level in the first half of this year, excluding the approximately $45 million year-end payroll timing shift into 2025. We anticipate adjusted unlevered free cash flow conversion of roughly 100% and net free cash flow conversion exceeding 30% in the second half of the year. We are targeting a net free cash flow conversion rate of at least 25% next year and beyond, turning more in line with the performance in 2023 before the strategic investment in the transformation. Interest expense remains in the range of $140 million to $150 million, assuming no additional debt repurchases. Thank you for your time, and we'll now turn it back over to Dave.

Thanks, Chris. We believe our expertise and range of services position us well to navigate the current macroeconomic environment with resilience and agility. At the same time, we'll continue to make progress toward completing the strategic initiatives that will enable Advantage to reach its full potential as a technology-driven, industry-leading service provider and generate meaningful cash flow for our shareholders. Operator, we are now ready for the Q&A session.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to enjoy your question. For participants using speaker equipment, picking up your handset before pressing the star keys may be necessary. One moment, please, while we poll for questions. Thank you. Our first question is from Faiza Awai of Deutsche Bank. Please proceed with your question.

All right. Good morning. I wanted to ask about branded services and the investment reductions that you talked about that are impacting the brokerage and omni-commerce marketing services. I'm curious, are you seeing that across the board, or is that specific to a particular type of customer, whether it's, you know, large versus small or a particular category. And then, like, are there signs of that improving? Because you talked about stabilization by the end of the year. So, just curious if that's driven by something else, whether it's new business or are you expecting, you know, these market headwinds to improve?

Hi, Fiza. This is Dave. I appreciate the question. So I'd say the reductions that we reference really depend on the client and their situation within the marketplace. So it's not a pattern that we recognize across all our clients, nor is it even category specific. It's almost company specific. But you are seeing that. I'd say a little more so on the marketing side, which is obviously a smaller piece of our business than on the sales agency side. It's been reported pretty broadly that you're seeing some pullback in marketing to consumers. And then as we get into the second half, one, we were lapping the client loss we referenced in the first half that we largely are going to be passed as we get into the third quarter.

There's a little bit of economics there in July. and then we've got wins that we've got client wins that could be smaller but when you add them up they're meaningful that should help us with sequential growth as we get into the second half understood and then you know you talked about the the new workforce system and it sounds like that you know you're it's basically going to be you know available in the second half so talk a bit more about, you know, you mentioned more subjectively some of the benefits that you're expecting. I guess, what does that mean in terms of, you know, whether it's the EBITDA margin uplift, and maybe more generally, as you think about the transformation costs, like, are we towards the end of the transformation costs? And just help us think so where we are in the cycle of, one, the costs, and two, you know, achieving, starting to achieve some of the benefits of implementing these new systems?

Sure, absolutely. And that's kind of two questions, which is good, because I can tackle them both. And I'll start with the latter first. So on time transformation costs, we are. We're seeing pretty significant reductions in restructuring costs and one-time costs that would be, you know, help adjust against EBITDA. In fact, year to date, we're about half of the level that we were this time last year, and we're going to see continued decline as you go through the year. We also had lower shared service costs in the second half of this year than in the first half of this year as we kind of lapped the increases that we saw last year, and we're starting to see some ramp down as it relates to transformation costs. It doesn't mean we're not investing in our business. There are still specific initiatives we're investing in and labor is one of them labor um improving our labor utilization improving the the teammate experience has been a priority for us um and we lay out in the in on the in the prepared remarks what we're thinking about there um one example of where we're seeing benefit of an overall system improvement with our labor approach and some of it is system-based meaning technology, and some of it is just improved process and workflow. But we had a net reduction in overall hires in the first quarter of about 1,500 people, and we had a net higher in the second quarter of 1,400. So it's almost a 3,000-person swing, if you will, from first quarter to second quarter. And part of that is driven by shorter time from application to hire, better snop or sales and operations demand signals so that we are hiring the appropriate amount of personnel for the work required and then we track really closely what we call the application to hire funnel and and where we may have gaps because along that path you can you can lose potential teammates and so we've been much more rigorous with our workforce operations team and tracking that funnel so that we have a higher percentage of folks that make it through it and then ultimately get onboarded into the company. So we feel really good about both the pilot that's been going on, where we've been sharing labor across geographies versus being banner-specific, but also just in the improvement in workflows within their workforce operations.

If I could just add to that, if we did get to a point where throughout the quarter we improved on the hiring front, and I think we entered the second half in a good place, what I just want to know is that I think that manifests itself, especially in the retailer segment, where we have better staffing levels there overall, which puts us in a good place to be able to take on some incremental project work, which can be very beneficial for us, and then also stronger execution and experiential, not only execution rate, but also the ability to handle more demos. We've seen really good demand signals there that I think puts us in a good place to be able to accommodate those, and that should benefit our experiential segment in particular in the second half of the year.

All right. Great. Thank you. And then this last one on cash flow, right? So you're talking about slightly better cash flow conversion. Is that primarily coming from lower CapEx?

And, you know, I know you mentioned timing of projects, but are we shifting CapEx into next here or just give us a bit more color around what's driving the lower capex this year yes so obviously uh we did take the capex down a little bit um about 15 million dollars to the midpoint and that that would therefore be a little bit of benefit to the cash flow but the real benefits coming from you know the improved dso which we saw at the beginnings of in this quarter we'll see really kind of take hold in q3 and especially across q4 and then also the um lower restructuring costs year over year. That's not a big factor for the second half of the year. So, you've got a stronger EBITDA, kind of top of the bottom, stronger EBITDA contributor contribution, less CapEx, much better working capital. Working capital then becomes a benefit to the company, a working capital source in the second half of the year. And then you'll see the lower restructuring costs as well. So, all those things contribute to the better cash flow performance for the second half of the year. And I will say it's a mildly expected, you know, with what we indicated last quarter. It's coming through as we expect.

Got it. Thank you very much.

Yes. Thank you. Our next question is coming from Greg Parish with Morgan Stanley. Please proceed with your question.

Hey, thanks. Good morning and congrats on the result. I just want to unpack branded EBITDA heading into second half. I mean, I think to hit the guide, we have to see some improvement there, right? You did that last year. I think in the quarter, and a third of the decline is client loss. So I guess backing that out, right, the other two-thirds, like maybe how does the other two-thirds improve in the second half? Maybe we just kind of unpack the drivers there and what we should expect.

Yeah, this is Dave. We see a few things, Greg. We talked about it a minute ago, just wins in the business, number one. We see a little bit of seasonality where you've got orders, which is how we're obviously paid through a commission-based business from a revenue standpoint, increasing as you get into the back half of the year with things like holidays, especially the categories that most represent our client base when you think of things like food and personal care. So those are two of the big drivers. We've also obviously been able to manage our cost to serve. We talk about our new Pulse program, which we're really excited about because it's giving us kind of greater fidelity in the decisioning that we have within the business. Because if you think about a sales business, you're assessing information to take action to improve an outcome effectively. And we're getting, you know, faster signals as it relates to brand performance and especially those things that are kind of the root cause drivers to market share growth or decline. So we're able to capitalize on those more quickly. But it also, because it's, you know, leveraging expansive data and analytics in an automated way, it's also a little bit more efficient as well. So that combination puts us in position to see some growth if we get into the second half.

That's very helpful. I'm sorry to come back to the CapEx point, but, I mean, $2 million was a little bit surprising. So, I guess, I mean, does that slow down, like, your completion of some of the technology investments that you're doing? I'm just trying to better understand here.

Look, honestly, there's been – so, it was lower than we expected in the quarter, and truly a lot of it is timing. But we did bring the overall, you know, guidance down by $15 million at the midpoint. So, there is less overall spending. And I would just say that we do expect the second half to be, you know, a heavier level of spend overall. Largely all IT projects are the main driver of our spend for the year. We have good visibility of those. And as I've said to you before, you know, if we can push the timing out when we pay them, then we're going to take advantage of that. And there's been a little bit of that. We did also talk in the script about, you know, just underutilizing, capitalizing labor, however I say that properly, but we capitalized labor at the proper rate, which means it comes through more as OpEx than CapEx. And I think that's something we're working on, you know, very diligently. And a lot of it comes down to planning and planning around our projects to make sure that we're, you know, accomplishing those on time and starting those on time. If not, we tend to see that bleed into OPEX. So there was an element of that as well. But with that said, I would say that, you know, maybe some of this shifted a bit into 26, but really at the end of the day, there's just a more efficient, you know, delivery of the capital projects we expect of the year now.

Okay, thanks. That's helpful too. So and then maybe lastly, lastly, for me on the wage front, maybe just kind of update. I mean, obviously, kind of reverted some of the headwinds you had in the first quarter on labor availability. But then just on the wage front, just kind of mark us to market here on where we're at and what you're seeing from the market in terms of wages.

Yeah, we actually have seen pretty consistent wage inflation through the year and about what we expected, you know, in that 3% range overall for the year, and we've been able to manage that quite well. I'd also say that in the quarter, our pricing nearly offset our labor inflation. It was very close, so I felt good about that progress we made on getting some price increases through to help offset what is obviously still some higher labor costs that are coming through in the economy today and in our business. I think for the second half of the year, I expect that same consistency. We don't have a lot of incremental, you know, sort of regulatory-type changes that are occurring there. So I feel like we're in a pretty good place to be able to mostly offset the labor cost inflation with pricing.

Okay, great. I'll pass it off.

Thank you. Our next question is coming from Joseph Beth with Canaccord Tignity. Please proceed with your question.

Hey, guys. Will Johnson on here for job. Thanks for taking my questions. So you can maybe drill down a bit on resolving that staffing shortfall in July and anything you can share kind of about the demand signals there that are giving you confidence and those levels being more sustainable through the rest of the year. And then maybe if you can drill down into retail services and how we should think about kind of that staffing uplift against maybe some more difficult Q3 comps from a project timing perspective.

Yeah, thanks. So we don't have a net staffing shortfall in July. In fact, the trajectory of our workforce operations and talent acquisition continues apace, even as we move into July. You know, when we talk about the project timing, it's literally just that. And we reference the fact that some of these projects, and this can happen on a year-over-year basis, that may have occurred in Q3, maybe shifting more into Q4. and which is why you'll see a little bit in the retailer segment, especially a part of that business, a little bit of shortfall in Q3 versus prior year, but much better Q4, and we have visibility to that. On the demand signal front, we're seeing strong demand for demos on the experiential space and such that we're better able to meet that demand and hit higher level of execution rates because of the strength of our hiring and talent acquisition and overall retention plans. And then we feel very good about the SNOP process with our retailer group and being able to kind of flex that force as needed based on project timing. And a lot of these projects occur in the third quarter and going into the early fourth. Obviously, as you get into holiday periods, you know, retailers look to have fewer, less third-party labor in the stores, which is very common and normal and is in our normal seasonality. But in the retailer space is the one where just due to timing, you're going to have a little bit of less project work in the third quarter, but we know that gets kind of compensated for in the fourth quarter.

Got it. Thanks.

And there are no further questions at this time. I want to turn the call back over to Dave Peacock for closing comments.

Thank you, Janice. We will be attending the Canaccord Growth Conference on August 12th next week in Boston with a webcast of a fireside chat at noon Eastern time. We hope to see you there. And again, thank you for joining us today.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.