Okay. Well, I think we're ready to go. Thank you all for being here. I am Luke Morrison, one of Canaccord's analysts covering software and IT services. With me here, I have Advantage Solutions. I have Dave Peacock, the CEO, Chris Groh, CFO. Guys, thank you for coming. So maybe just to kick things off, I'm sure there's a mix of investors in here, some that own the stock, some that are newer to the story. Maybe just open the room. Talk about what Advantage does. What are you doing for your customers? What are your customers doing? Just a broad overview, and then we can dig on the details.

Easy to do. We are the largest sales, marketing, and merchandising firm in North America. We are serving clients across three business segments, branded services which is everything we do for a CPG. Retailer services which is most of what we do for retailers and then experiential services which really touches both and you know we run the gamut as it relates to services is from making sure products are in stock or make sure that you know joint business plans, sales plans are executed. They're tracked, followed, adjusted when need to be based on market conditions. And then we make sure products are available for sampling and discovery by customers or consumers.

Awesome. Excellent. You guys just reported a week ago. Maybe just discuss briefly what stood out in the quarter. What are you guys seeing in the market today? Just general trends?

Yeah, absolutely. Look, I mean, we had a good quarter. We beat consensus. We reiterated guidance, even with some of the uncertainty that we face with consumer confidence, which definitely affects our business. The inflation report, at least for us, was good because you saw grocery deflation for the first time in a while that just came out today, which is beneficial hopefully for shoppers because you are seeing kind of different impacts with our shopper base, which ultimately affects our CPG clients and our retail customers. You know, we're a cash-driven business. We're very asset-light. So given the low capital intensity, we're encouraged about both the cash flow the business is generating now, but also with the cash flow that we know will be coming forward in 27, 28, and beyond.

I would just add that we had some, this quarter in particular, and really for the first half of the year, growth initiatives that are working. So we're seeing some of the new services, some of the areas that we've really, you know, invested in lead to growth. So we saw revenue growth again. We had higher costs of a bit of a business mix that caused EBITDA to be a little softer. But I think overall it was better than we thought. And I think a reiteration of the guidance, you know, should give investors a lot of confidence in the model and the growth initiatives working. Yep, yep.

Maybe we can just dig in on, you know, you talked a little bit about the consumer and the health of the consumer. You know, I think for a few quarters you've been talking about sort of this K-shaped economy dynamic and, you know, there's increasing value-seeking behavior broadening across just the broader consumer base. Just maybe give us a general sense of the trend in the backdrop, how that affects your customers, and then how that flows through to you guys.

I mean, there are kind of tailwinds and headwinds associated with it. So when you have what's happening in the market, so lower income consumers are being challenged, and so they're looking for deals, they're looking for value. And where that plays out as it relates to our business, we are the largest private label agency, if you will, in the country. So we sit between scores of retailers and over 6,000 contract manufacturers in enabling those programs. Having been in retail grocery myself, it's really hard to develop and roll out 6,000 SKUs across multiple categories, unless you have someone like us who can do it in a syndicated manner. So, that business is performing well. You have assortment changes in the store because of how people are shopping. You're going to see more value-based items available or multi-pack items available. That plays into our reset business very well as a tailwind. And then you've got also people on kind of the higher end that are changing their portfolio of purchases based on health and wellness. Whether it's GOP one or just general health and wellness trends. So that's bringing a lot of discovery and new products into the industry. So that supports our experiential business. I think some of the headwinds are more around and especially around CPG spending and budgets. A lot of the consumer products companies are under some pressure for lots of reasons. It can be tariffs, it can be just general inflation, depending on what the makeup is of their products. And that creates some issues for especially our branded services business where you've seen softness, but also a little bit in the experiential if they start pulling back on innovation. Now, we're not seeing that right now. We're seeing a consistent, and this has been something that's been going on for years going way back before COVID, kind of continued investment in innovation. And when you see that kind of investment, that means you need to resort shelves, which plays into our planogram and reset work. and it plays into our experiential services work.

Yep, yep, good. I've started to sort of think of Advantage through a lens of three segments and sort of two businesses, one where you're paid for your relationships and expertise and one where it's more trained people executing in stores on the front lines. Maybe just through that lens, if we think about the business and just simplify, You know, you're seeing some tailwinds more on the frontline folks and some headwinds on, you know, you touched on this, the branded piece of the business. But just thinking like, you know, the merchandising work, the sampling business, what is that work? Who's buying it? Why is demand accelerating there?

You're very astute. It's how we talk about the business more and more internally as far as how we run it. We actually talk about it often in network and labor. And, you know, it's about two-thirds labor, if you will, and one-third network as it relates to the business makeup, the way we look at it. And parts of that network business, you know, a big part is what we talked about, is the sales agency or brokerage in our sub-segments. But another part is the private label advisory. So you've got some offsets there. Pivot over to the labor side. That's where you see our experiential services, our merchandising services, both for brands. So, CPGs who send us in to help remediate out of stocks, build displays, sell on incremental displays, and retailers who look to reset shelves and things like that. I think the reason you've got some demand durability in those areas is, one, labor availability and the use of labor within retail has both been challenging and changing. So, with the growth of e-com, in certain retailers you have people now who aren't stocking, they're picking. So they don't have as much time to stock. So as we look at what we call the center of the store, labor hours dedicated to that part of the store are down versus pre-COVID. And so what that leads to is higher level Vita stocks and more inconsistent sort of availability of product, which creates lots of issues for everybody. So that's created demand both from the CPG standpoint, but also for retailers because they're constantly trying to reset and resort to make sure they have the right assortment so they can meet customer demand. And then you've got on the experiential side, which is another big labor business, is just what I talked about before, this continued growth and energy around new products and discovery. And I think retailers recognizing more and more that customers, when they, you know, yes, there's growth in e-com, but still 80% of the shop is in the store. And that experience has kind of fallen off post-COVID, so they're trying to bring some of that retail attainment back. And so, you know, we see, we've seen consistent growth in our quote-unquote labor businesses and can see continued growth, you know, in durability and demand.

Yep. Yep. Good. Maybe just to follow up on this, if I think about the sampling business, you know, there's a lot of momentum there. It's growing very consistently. I think there was a view in the market maybe a year or two ago, at least when I've spoken to people, that this was a reversion to the mean post COVID. And yet, quarter after quarter, we're seeing very durable growth in that business. Maybe just talk about the durability of the secular trends driving that business. What is it? I know you have a big part of that business is tied to one customer, one retailer. Maybe just talk a little bit about the durability and what you're seeing in that segment.

Yeah. I mean, look, I was in with one of our large customers, the senior leadership team in a store just a few days ago. What we're seeing is we're no longer looking at pre-COVID as a reference because we're past that. I think I mentioned the ongoing innovation and or emerging products and emerging brands that are coming into the industry that kind of drive that need for discovery, number one. And even if you're an online shopper, you still want to try things before you buy them and you can't do that when you're obviously shopping online. So when you go into the store, you look for that and the need for a better experience for customers in store. And so we're seeing all-time demand levels, and part of that's driven by the fact that we're able to support those demand levels. So we've been really pleased to see consistency in workforce operations and execution rates kind of north of 95%. So where they really need to be is for people to have confidence to invest in that as a service. And then I will say that we've got other retailers, and I've got a senior team right now down at another very large retailer, leveling up the sampling and experiential presence that they have pretty significantly because people see the value in it. So it's one that we see demand kind of across most of retailers that we work with and even new retailers that are looking at getting into that space more aggressively. I don't know, Chris, if you have anything with that.

I think it was well said, Dave. And I just wanted to add maybe a little more, just some numbers to it. Like 18% growth in events in Q2 was a really good number. And we're up comfortably in double digits in the first half. The point I want to make was that execution has only risen as volume has been that much better than we thought. And so it gets back to what Dave mentioned, like the centralized labor model, our workforce operations, being able to hire sufficiently in a very efficient way, staff the events, and then execute at this 95% level. And the outcome of that, obviously, is very strong profitability. So we've had good margin, good incremental margin in that business as well. And I would just say that it's been while we are investing, and especially starting here in the first half, we'll call it in Q2, to sustain this level of growth, this growth that we see ahead of us. We always say the demand signals look very good. We're seeing that today. So we're investing to make sure we can sustain that. So therefore, to achieve those higher rates of growth, higher execution, while getting incremental margin. And that's kind of our goal here. So I think it's a really nice setup for that business going forward with that outlook.

And I think, to Chris's point, the margins of the labor business, and in your words, the relationship business are converging. They're very good margins on the labor side of our business.

Yeah, that's actually where I was going to go next is sort of the different margin dynamics, you know, experiential is contributing with pretty high incremental margins. Just help us think about the long-term path of, you know, that, you know, branded is declining, experiential is increasing, the foundational margin profiles of a, you know, frontline worker business versus, you know, the branded network side of the business and how that affects the margin profile of the business as those two diverge?

Yeah, I think, you know, a lot of the work that we've done, as Chris said, in the centralized labor management, and I will say the advent of AI and how we can use it in that business for enabling things. I mean, you think about you know I can get into really myopic examples but we have to photo verify things you know because you've got people dispersed in stores you know you don't have customers able to see so they need spot check just that process being managed through AI has taken out significant hours and in kind of cost as far as how we manage the business is one example how we get people from when they've applied for a position to actually start I mean that was that was double digit in days because it just had this cumbersome process of all the boxes you had to check to get someone onboarded and started. We've got it down cut in half and we're going to be probably a few days lower by the end of the year, both through process reinvention but also on AI. That's supporting that coupled with a fixed cost or step variable cost nature in that business of district managers and what have you. Increased and improved margins as we see the revenue flow through. And then on the kind of what I'll call relationship or the branded side being one example, although the private label is a little bit different, it has been a different reality given sort of some durability of growth and demand. I think that the challenges in revenue growth there get revealed, especially in a syndicated environment, because you still need a group of folks calling on the retailers. And so we have to constantly assess what's the cost space for that business. And then it's a long lead business. So, you know, if you lose a client, you're seeing it for four quarters. If you win a client, you're going to also see it for four quarters. We're excited and optimistic about the new business pipeline that we both have now and they're starting to realize benefits from. But that's one that you have to constantly stay into and then stay in step with and bring as much kind of technology and efficiency to the process as you can so that, frankly, you're delivering on the service level that our customers expect at a price that derives an ROI.

Yeah, yeah, good. I want to hit on the other side of the coin, which is sort of secular trends affecting the branded piece of the business. You know, one topic that comes up occasionally, retailers increasingly negotiating in-store joint business plans alongside retail media agreements.

Maybe just talk about, like, what that is, what that shift changes where a brand's dollars land and how that affects you guys it's actually helping I mean we've been kind of banging the drum over the last few years that these joint business plans I think there was a big pendulum shift toward retail media and e-com and I was in a grocery retailer from 2017 2021 we were we were as aggressive on e-com and is anybody else and there are some really efficient ways to get price promotion and value to customers through those means. But with the big shift of retail media, or to retail media, it's left, I think, a lot of CPG partners saying, you know, what am I getting in store for this? Where is sort of the, you know, in that last mile, you know, when the truth is at the shelf, where am I getting lift? So I think retailers have wisely, and us and others have convinced the two to say, look, you need to make sure you really marry these things and say, look, your price promo plan, you know your new item and innovation plan your retail media investment and your in-store whether it's sampling or just presence display etc all have to line up and and be contemplated within a joint business plan for a holistic you know investment that's going to lead to optimal growth and then every category is different every brand is different and so they're constantly toggling those levers as to what's going to drive that next dollar of growth.

I would only add to that that, you know, we're seeing this in our business as well. I use the term ROI provable, you know, work that we're doing in the store, right? So I think that there's an increasing desire to make sure we can measure the return on the investment we're making, whether it be with a retailer in a retail media environment or in some in-store work we're doing as well. And I think that's what we bring is a high ROI and a necessary function, but a high ROI function at that, that really sets well with a lot of the CPGs who can see the benefit and the fruits of that investment.

Yep. Yep. Excellent. I want to pivot over to financials a little bit, specifically the balance sheet. You know, that's a big part of the story. You guys have a decent amount of debt. You refinance that in March. You push maturities to 2030, 6.5% to 9%. Just help me think about what that bought you guys, what the long-term outlook is for that debt load and that debt level, the incremental interest expense on that, just all the moving pieces there.

Yeah, I can give you a quick minute, Chris. The headline is we've been very open about wanting to get below 3.5 times leverage. We knew we needed time to do that. So all along we envisioned that there would be a moment that we want to extend that debt out to put ourselves in position to have the time to do it and just kind of give us better control of the situation, if you will, coming off transformation investment. And, you know, our lenders were great partners in that process, and we feel really good about where we stand now, especially, as I mentioned, that we've got a really strong vision toward cash generation within the business going forward.

Yeah, I think that's the punchline for sure. So having the time was desirable, and I think it's important to reiterate, and we said a lot of this during that refinancing, is we are investing, and the board and the management team would like to invest back in the business, and now we have the runway to be able to do that because we see a great return on the other end, if you will, of those investments. It's a higher cost for the debt for sure, but as Dave said, we've reduced the debt by $500 million in the last three years. That's been, I think, very good. I think we have a continued path we see towards, you know, increasing and stronger free cash flow generation. And that's going to be, to me, the key lever, key driver of, you know, reducing our debt and reducing our leverage level. Yes, we like to grow EBITDA as well. That would be very important. But I think we're going to have the cash flow that we generate will be sufficient to continue to delever pretty handily every year. And we've already talked about, you know, some likelihood of less CapEx next year, less one-time costs. All of a sudden, the net free cash flow starts to grow at a level that supports the ability to delever at a half turn or more per year. And you start to get that flywheel going, if you will, as you get EBITDA growing, too. So you've got the runway. You've got the cash flow generation improving. All that lined up well to say if you can extend the maturities, you've got the ability to really play out the strategy of delevering to three and a half times or less.

I want to talk about sort of what's going on internally with you guys. as you've spent two plus years rebuilding sort of your internal systems, you have SAP Oracle Workday, you're kind of nearing the tail end of that process of implementing those systems and getting more efficiencies out of those. Just talk about how is that gonna affect the business? How's that gonna affect your ability to be profitable? It affect your DSOs in the most recent quarter and maybe we'll see it bounce back like from that, just how it affects your cashflow, all of those good things that will come with those internal efficiencies.

Yeah, I mean, we've invested to reinforce the tech foundation of our business and position us to be able to leverage modern technology like AI and machine learning. So that was some of the investment we did in our data lake and our capabilities there. Obviously, when you have, you know, and I'm sure anybody who hears things like SAP, they kind of, okay, well, that's kind of more as a cost than it's going to be a return. In a business like ours, we're working capital is driven largely by DSO. We're seeing real benefit from a cash standpoint relative to a DSO. Now, what happens is when we implement, we just implemented the final phase, you're kind of delaying payments and you're delaying, you're seeing some negative effects, which we saw last year when we went live with the primary program. and we're already seeing improvement and we're fully confident that we'll get below where we ended last year and then we'll continue to work that number down which is meaningful for us from a working capital standpoint because again, our capex is very low as a percent of sales. We just don't have the asset intensity so if we can manage that better, that gives us a better cash generation. So I think at this point, we feel really good about that foundation and that architecture. it's going to now allow us to converge. So our company was the byproduct of multiple acquisitions over time, literally over 70 acquisitions over 10 years, a lot. And we've taken that and transformed it into an enterprise. You need those base systems to then have the opportunity to converge what I'll call multiple boundary systems, and that's the process we're under now. And that's where you start picking up some real efficiencies, both in process and operation.

Yeah, I would agree with that. And that's ultimately the goal to extract the efficiency that would come from all these new systems. I also, though, want to note that, you know, it's obviously improved our control environment. It's made, you know, like data integrity has gotten a lot better. It can always get better, to be sure I say that. But it's made that data integrity better. And it's enabling all these new, the pulse system, alert-based retail. The essence of the data that we're using to drive that is courtesy of this pretty significant IT transformation we went through. So we can put security and cloud, and we've done all the right things along the way. But ultimately, I'm going to argue that's what's going to be the driver of all the incremental growth initiatives that we have and the new IT, new systems that we develop for our teams that will be an outcrop of that investment we've made.

Yeah, yeah, good. Maybe just to put a finer point on sort of the free cash flow question and the leverage question, you know, if you think out over, you know, a five plus year period and sort of the path to your long term target of three and a half times, do you have a mental model of like, what does that look like? What's the trajectory? You know, is there, as we go through these efficiencies and as different parts of the business scale and stabilize, like what does that path look like?

Yeah, I think when you look at the business, you'll probably see even a little bit more concentration on the labor side just as trends move that way. It may not be as dramatic as you've seen in the last three years. I think you see continued durable growth in experiential services because there are other services that we're kind of just scratching the surface on as it relates to rolling out. I think retailer services gets to more consistent growth. We've had some project-by-project aberrations on a quarter-to-quarter basis. We'd like to get that volatility out, and it's rarely the double-digit. It's going to be more kind of a nice single-digit growth engine, but there are services there as well that we are both testing and exploring that I think give us an opportunity to grow that segment, and then stabilizing branded services. And if you do that with what Chris talked about is a backdrop of a much more cash-generative environment, better working capital, better DPO, better systems to be able to converge and simplify process, you've got a nice cash-generating business that should be, I would think, five years from now, well below that three-and-a-half times target would be the expectation. and a very nice cash yield on the business.

Yeah, excellent. That was good. We are almost up on time here. Maybe I'll just leave you with one final open-ended. If we're sitting here again a year from now, talking about the business, what do you want investors to be saying and thinking about the business differently next year versus sort of where it's positioned today and where do you guys want to be?

I think it's, you know, look, transformations are always hard. And this was one that we had to get, like I said, going from a whole co to an enterprise model. We had to be really discerning around what businesses we wanted to be in and had a right to win. And what did we sell off? We sold off almost a dozen, you know, different businesses. We delivered and we reduced that in that process. I think going forward, it's, you know, hey, these guys have done what they said they were going to do. where they're driving cash returns because they're very thoughtful about the use of cash in the business. And, you know, our priority for cash utilization is in, you know, retiring debt. So I would expect people to see that, feel that, and understand it. And then start seeing some of the things that we've talked about, we talked about on the quarterly call, that you start seeing the signs of stabilization within the branded services segment. You've seen more consistent growth within the retailer services segment. and durable growth with an experiential and hopefully talking about a few of these services that we've been working on and or piloting that are starting to take hold and we'll have real customer examples around that. I think if that's that to be the talk track a year from now and people see it and feel it, then we'll be in a good spot.

Excellent. Well, I'm looking forward to seeing that progress. Dave, Chris, thank you so much for being here.

Thank you. Appreciate it.