Advantage Solutions Inc. Q1 FY2025 earnings call

• First quarter revenues of $696 million and adjusted EBITDA of $58 million were down 5% and 18% y-o-y, with intentional client exits and transformation-related investment contributing to adjusted EBITDA decline, also impacted by calendar with late Easter and fewer working days, and consumer confidence waning, tariff concerns leading to lower consumer purchases.
• Segments: Branded Services facing headwinds from consumer spending contraction, etc., but continuing to adapt; Experiential Services had strong demand but temporary headwinds from customer loss and staffing issues; Retailer Services impacted by staffing shortages but client demand solid.
• Investments: Making progress on tech infrastructure modernization, ERP implementation Phase 2 rolled out in April, on track to complete foundational data platform in H2 2025 and broader cloud migration by Q1 2026, rationalizing systems for OpEx savings, focusing on labor utilization with pilot of new field operating structure showing benefits, broad-scale initial rollout for centralized labor model on track for H2 2025.

Branded Services generated $257 million of revenues and $28 million of adjusted EBITDA, down 9% and 19% year-over-year respectively. Experiential Services had $221 million in revenues and $12 million in adjusted EBITDA, down 1% and 28% year-over-year respectively. Retailer Services achieved $218 million in revenues and $18 million in adjusted EBITDA, down 3% and 7% year-over-year respectively. Revenues for the first quarter were $696 million and adjusted EBITDA was $58 million, down 5% and 18% from the prior year respectively, excluding pass-through costs and from continuing operations.

• Lowering revenue and adjusted EBITDA outlook to flat to down low single digits. - Tariffs and consumer reactions could have modestly adverse net impact, but potential benefits from private label and supply chain services may be offset by demand softness in certain services. - Reiterate adjusted unlevered cash flow guidance of greater than 50% of adjusted EBITDA, and ERP implementation could bring greater cash flow benefit.

• First quarter performance impacted by challenging labor market, difficulties fully staffing events and projects across segments. - Macro environment with softer growth in consumer market, consumer confidence waning, tariff concerns leading to lower consumer purchases and client reevaluating spending levels.

Q: Hey, guys. Good morning. Thanks for the update to ask a couple of questions. I thought we'd first maybe check in on the macro here. We're kind of halfway through the second quarter. Any kind of notable changes that you're seeing kind of real time versus kind of the Q1 print? And then secondly, if we could maybe drill down a little bit on some of the labor challenges in Q1, kind of more specifically certain geos or areas of the country and kind of a little more detail on the progress to get those fixed.

A: Hi, Joe, thanks. This is Dave. We put a task force together pretty quickly and actually had anticipated a little bumpiness relative to labor in the first quarter as we were making some changes both in some of our event managers in our Experiential business, but also in our talent acquisitions team and both some in process and some in leadership. And it's - the good news is there's yielding from that work. Already in this quarter, we're seeing much better hiring rates, if you will. And some of these anomalies that we saw in certain regions and certain geographies are starting to smooth out a bit. And wherever we see dispersion relative to our ability to acquire talent in a certain geography, we've got, I think, a nimble enough and agile enough team now to go address it pretty quickly. And we've always had in our business. I mean if you look at our business, you've had kind of better or worse hiring in different areas. It was a little more exaggerated in the first quarter. But safe to say that we feel very good about how things are playing out in the second quarter. And it's important to note as well is that those businesses that are most exposed to labor that we have actually have more seasonality in second and third quarter. So we have an ability to make up more ground to the degree we can continue this hiring pace.

Q: Good morning. I have two. So the first, the issues with staffing in the previous question, you mentioned event managers, talent acquisition, you said some in process and some in leadership. Have there been meaningful increases in your labor costs that have allowed your staffing levels to improve over the last month or two? Was that part of the problem? And what types of labor inflation are you seeing?

A: Thanks for the question. We are not seeing what I would call differentiated labor costs from first quarter to second quarter necessarily. We're seeing labor cost inflation in line with the macro market for high-volume talent. A lot of that is a byproduct of regulatory minimum wage laws in select states. And then obviously, you get some markets that are more competitive and have been for a long time. One example might be like the Southeast of the U.S. But yes, from quarter one to quarter two, we're not seeing a real difference. And it wasn't our wages that was the issue. I think it was a little bit on our side relative to our talent acquisition strategy and some of the changes we were making. And like I said, we signaled a soft first quarter in the fourth quarter call 3 or 4 months ago. And part of that was knowing kind of we're going to go into this quarter a little bit of risk on the labor side. But the good news is the initiatives that we've put underway are really starting to take hold.

Q: Yes, hi. Thank you. Good morning. I wanted to ask about - you mentioned the macro impact, and you alluded to channel shift. So curious if you could talk about what you're seeing there and whether you're starting to see increased business as it relates to private label? And then maybe on the brand side, or I don't know, maybe it impacts all segments, but what are you seeing? Are there specific categories where you've seen a change in consumer or retailer or manufacturer the demand?

A: Yes. It's a good question, an important one. So one, we all see that consumer sentiment is, I think, the lowest it's been in 12 years. And consumer sentiment is affecting their shopping behavior. You saw retail sales that were below expectation, for instance, in February. March, they rebounded, but they were on large ticket items largely. And we deal with fast-moving consumer goods. So with kind of limited discretionary spend, we're seeing in certain categories where consumers may fear tariffs or fear inflation or there's even in some cases, somewhat exaggerated inflation in the media, they'll start buying up their stocking up in those categories. And that just affects overall movement of goods across all categories. You've had retailers destocking a bit, in other words, reducing inventory. And again, that goes back to depending on the category in the categories where we operate being fast-moving consumer goods, you would see a little bit of destocking there, even though you may find other categories like electronics or large durables that there was actually more inventory just trying to get ahead of tariffs. So part of that is how they're leveraging their overall working capital and their inventory dollars. As it relates to our business, the macro that we've seen is that reduction in orders because we're a commission-based business in much of our branded services area. And then on the private label side, you do see an increase in shift in the private label in the macro when you look at the IRI - or I'm sorry, Circana MULO [ph] data. But we are exposed more to regional grocery and a lot of that private label growth is occurring with larger retailers, mass merch, club stores. We do have some exposure to, but not as much exposure as you have to the grocery channel and some other channels like that. So I'd say on the other side, when you look at the macro and the reason we gave kind of broader guidance as it relates to our revised outlook is we do provide services that are really necessary for retailers and consumer products companies. And we can help them navigate this difficult time. And so the discussions we're having with a lot of our clients and customers are just around that. With uncertainty in the market, can we provide some level of certainty, whether that's in an expense line item or in a specific service to help them navigate and manage the unexpected. And so we can do that with our supply chain services, as you referenced, some of our private label advisory for retailers and then some of the merchandising work as a lot of consumer products companies and retailers are looking at SKU rationalization that can create work for our teams. So we gave a little bit of a broader outlook, just a range out as far as outcomes for the year because it really is unknown how the consumer and then thereby the CPGs and the retailers are going to behave. But we do see some opportunity to leverage our services and where they intersect with the specific needs of the consumer segment right now.