Greetings. And welcome to the Advantage Solutions First Quarter 2024 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. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Ruben Mella, Vice President of Investment Relations. Thank you, Ruben. You may begin.

Thank you, Operator. And thank you everyone for joining us on Advantage Solutions first quarter earnings conference call. On the call with me today are Dave Peacock, Chief Executive Officer; Chris Growe, Chief Financial Officer; and Sean Choksi, Senior Vice President of Strategy and M&A. Dave and Chris will provide their prepared remarks, after which we will open the call for question-and-answer session. 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 assumptions, risk and uncertainty that are difficult to predict. It is important to note that the 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 expressly qualified in their entirety by such factors. The company does not undertake any duty to update or revise any forward-looking statement, except as required by law. We want to draw your attention to the fact that management remarks today will focus on certain non-GAAP financial measures. Our earnings release issued earlier today provides detailed reconciliations of these non-GAAP financial measures to the most comparable GAAP measure. This call is being webcast and a recording will also be available on the company’s Investor Relations website. We will refer to our presentation during the prepared remarks, which is also accessible on the Events and Presentation section of the IR website. And now, I would like to turn the call over to Advantage’s CEO, Dave Peacock.

Thanks, Ruben. Good morning, everyone, and thank you for joining us. As you saw in our results issued this morning, we unveiled our new reporting segment, Branded Services, Experiential Services, and Retailer Services, which we believe provide a clearer picture of our business and the drivers of our financial performance. We reported revenues excluding pass-through costs of $771 million and adjusted EBITDA of $79 million for the quarter, both inclusive of discontinued operations. We also paid down $51 million in debt and bought back approximately 3 million shares in the first quarter and nearly 2 million shares in April, which is consistent with our objective of offsetting dilution and taking advantage of what we believe is an undervalued stock price. Our financial results for the quarter were in line with our internal budget and we remain on track to achieve our full year guidance. Experiential Services outperformed our expectations in the quarter. Retailer Services also performed well despite holiday timing and a tough comparison. For Branded Services, our decline in client orders due to market softness and higher-than-anticipated costs drove the year-over-year decline and adjusted EBITDA. Overall, the Advantage team did a great job implementing our strategic initiatives, transitioning the resignation of two client relationships and executing the expansion of services for our large, existing client for our demonstration services in a challenging market environment. Inflation and the rising cost of living continue to pressure a growing segment of our consumers. We believe those macro factors contributed to the market softness in the first quarter as measured in total U.S. and food channels. Our upcoming Advantage Outlook survey of nearly 100 retailers and CPG manufacturers provides valuable insights into what they expect in the coming months. Approximately 40% of retailers surveyed expect to increase online fulfillment labor over the next…

Thank you, Dave, and welcome to all of you joining the call today. My comments regarding our financial performance will include discontinued operations. Foreign exchange had a minimal impact on our first quarter results because of the deconsolidation of the Advantage Smollan European joint venture. In addition to our new reporting segments, we will also discuss our revenue performance, excluding pass-through costs, which provides a clearer picture of our topline performance and is similar to our peers’ information. Consolidated revenues were $771 million, excluding approximately $135 million in pass-through costs. Revenues increased by 1% when excluding divestitures and the impact of foreign exchange. Adjusted EBITDA was $79 million, representing a 10.2% margin on revenues, less pass-through costs. We expected a decline in adjusted EBITDA in the first quarter. However, the margin drag was more than planned as robust growth from Experiential Services and a good performance from Retailer Services were offset by softer performance in Branded Services. We continue to focus on achieving pricing in relation to inflation across our business, which we did in the first quarter, but we cannot fully cover the inflationary pressures, especially in January and February. Our financial performance improved in March and early results in April were favorable. Our investments and initiatives are designed to enhance the delivery of our services to current clients and customers and attract new business. While that has increased costs year-over-year by approximately $10 million in the quarter, the new organizational structure will allow us to improve operational efficiencies and further optimize our cost structure under the new shared services model. This will be complemented by the expected benefits of collaboration with Genpact and Tata Consultancy Services. The leadership team takes its fiduciary duties seriously and manages our cost and capital appropriately, focusing on achieving efficiency for our business,…

Thanks, Chris. Over the last six months, we have diligently and consistently worked to simplify our business and enhance our capabilities so we can better serve our CPG firms and retailers who rely on us every day to win in the market. While this work will continue, I cannot thank our team enough for their focus, dedication and persistence in staying on task. We remain on track to achieve our objectives this year across the organization, we are implementing the right plans to expand our competitive advantages and become our clients’ and customers’ strategic provider of choice. Our scale, capabilities and deep understanding of the consumer industry position us to win, which ultimately will drive growth and value creation for our shareholders. We will now take your questions. Operator?

Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Joe Vafi with Canaccord Genuity. Please proceed with your question.

Good morning. This is Pallav Saini on for Joe. Thanks for taking our questions. My first question is on the macro. Is it fair to say that your clients are incrementally more cautious, but they are still prioritizing strategic initiatives like private label, digital programs, et cetera? And are you seeing any changes to the pace of implementation of these programs, given the more cautious outlook here, perhaps?

Thanks for the question. I think, we saw a couple of things from a macro standpoint in the market. Obviously, there is economic uncertainty in the market, and I would argue that a lot of consumers, especially a little bit on the lower end of the economic spectrum, are being pinched by the current environment of continued inflation and just challenges within the economy. That has driven private label growth in the business and we are seeing unit growth…

Okay.

… overall in private label and a strong business there. I would say, when you look at the Branded Services side of our business, we saw some destocking at the retail level, as well as a slowdown in point-of-sale product or volume movement or dollar movement overall, and this is talking about the entire consumer category. So, I think, fundamentally, that -- some of that is short-term in the sense that, if retailers are reducing inventory, that is not going to continue throughout the year. They do that over kind of a one-time period and that had an impact on revenues for the Branded Services area. But from a client standpoint, we see them aggressively trying to drive unit growth from a CPG standpoint and really from a retailer standpoint. So, there is actually a little bit of a convergence and objective between our CPG clients and our retailer customers.

Hey, Pallav. This is Chris Growe.

Thanks. And…

I might just add a quick comment to that. Just that there was, as Dave mentioned, a little softer start to the year. We did see that improve, though, throughout the quarter. So, I think that is just one thing to keep in mind. And secondarily, we have talked about -- and you can see it in the Experiential business, a nice improvement there in volume and really execution on our part, but beyond that, really just an increase in volume overall. So, we are seeing some of that activity, investment, if you will, from our clients that we are benefiting from on the other side on the Experiential side.

Thanks, Dave and Chris. That is helpful. Just to follow up to that, Chris, what type of growth is embedded in your 2024 outlook for Experiential Services?

So, we are not going to give guidance by segment and I think this is obviously the first time we are showing you the segments and we will have more information as we move forward on that. I would just say that, we are seeing a nice recovery here and continued recovery in volume and we are also seeing strong price realization in that business. I know we are really focusing more on metrics in that business that denote profitability, but I would just tell you that in the quarter, we were like 88% of 2019 volumes in the demonstration business, in the Experiential business. So, we saw a nice sequential increase in the level of activity in that business and that may give you some feel for the rate of growth throughout the year. We do expect it to continue to grow sequentially through the year.

Great. Thanks. Thanks for the color, Chris. And just last one from me. You have been pretty active in simplifying the portfolio over the last six months or so. How do you see the composition of the portfolio now? Is there opportunity for further refinement here? Thanks, guys.

Yeah. There is and we continue to be active in that space. And as you are seeing, probably, that there is a movement to get to our core business and I think as we get through this process, and especially get into the summer, that will become even more clear. And I think we will be able to speak a lot more openly about what that core business is and where actually we see it going. But I can assure you that the resources that we are devoting to growth, acceleration and cost management are really focused on the core businesses as we are simultaneously looking at our portfolio, and as you said, making some decisions to simplify and sell off some businesses.

Great. Thanks again.

Thank you.

Thank you. Our next question comes from the Faiza Alwy with Deutsche Bank. Please proceed with your question.

Yes. Hi. Thank you. I think that is me, Faiza.

Hi. Sorry, Faiza.

So -- hi. So, I wanted to ask about the higher costs that you mentioned. It sounds like it was a function of higher planned investments. I think there was some inflation in there and then maybe higher costs that were not absorbed because of the divestitures. But just give us a bit more color around that and I think you mentioned costs improving through the course of the year, so maybe talk about how we should think about all of that?

Yeah. Faiza, I appreciate the question. So, I think you are probably focused on the Branded Services area. So -- and I think you hit on a couple of key things. One, you have got a lot of the transformation and some of the portfolio work, frankly, going on in that segment, as you noted. And then -- and like you said, a lot of that was planned. And then I think the other thing, we had client exits, so not necessarily divestitures, but client exits that were intentional, that occurred in the quarter. And I think the timing of that, because they were intra-quarter, if you will, made it so that we had cost absorption issues relative to taking the costs out related to those client exits. And then as you can imagine, these are largely people businesses, so we have got to serve those clients and serve them well up until the day of exit. And when you do that, it obviously can impact your timing as it relates to rationalizing the organization. So really, that was the issue. We do anticipate costs improving as we go forward based on actions that were taken or have already taken. For instance, on those client exits, we really adjusted the workforce to reflect that going forward very early in the second quarter.

Okay. And then you mentioned wage inflation. We haven’t really heard that from a lot of other companies in terms of inflation sort of maybe reaccelerating. So just wanted to talk about that like are you talking about? I know you mentioned maybe you might have used the word persistent. So, give us a sense of where we are on wage inflation and do you need -- should we be expecting incremental pricing, because you said price realization did not fully cover those inflationary pressures and where and when should we see that?

Right. So, when you look at our business, obviously, as we described a minute ago, it’s a lot of people and we actually have a lot of transportation as it relates to workforce moving around, if you will, to service the business. And so you look at a couple cost areas. Wage inflation was continued to be persist -- was persistent. It was higher than we expected. It wasn’t necessarily higher than past quarters or even maybe last year, but it was higher than we expected. And then you have things like gas prices that we’ve seen more recently to kind of take up in certain markets and a lot of markets. So those are the areas where we see the inflation flow through. And for us, it’s just making sure that we’re managing the business. One, to be as cost-efficient as possible when those situations arise. And then two, as you said, in the areas where we’re able to realize a price for that. And obviously, in parts of our business, we actually have contract structures where it could be a cost-plus situation or a commission situation where pricing is not really the issue and so there’s kind of a natural price flow through, if you will, depending on the revenues for our clients when it’s a commission situation or the specific cost environment we may be facing.

If I could just add to that, I would just say that in the first quarter, there were a number of, I’ll call it, regulatory changes that did support increased wages in the quarter. Those all happened in January 1. As I look across our business, the labor inflation was persistent. Not an acceleration or reacceleration, simply persistent. And we looked at the year -- we’re looking at the year with a rate of inflation in that, let’s call it, low-to-mid single-digit level and in last year we were definitely in the mid-single digits. I think in the first quarter, it kind of continued into that mid-single-digit area. So I think the point I’d make is just that there’s inflation that was a little higher level than we thought. We think it’ll level out a bit from here. Now, most important is how we’re attacking that, right? So we’re looking at our costs, obviously, and Dave has mentioned that. We are looking at -- we have pricing initiatives in place that we can use to offset some of that. We’re looking at managing our mix. All the things we can do in that suite of tools we have to try to manage that inflation across the year.

Okay. Got it. And then just last one, you mentioned improved results in March, which appear to be continuing in April. So what’s driving that? Is it just that you’re done with sort of the inventory rationalization or is there something else from a macro perspective or something else that’s unique to you?

I think you hit the nail on the head. I mean, you -- the inventory rationalization, while it may be occurring a bit, as I mentioned earlier, it can be a bit transitory, right? Once you adjust your inventories, you sort of operate from that base going forward. So we’re seeing overall better shipments for our clients collectively. We talked about in the Retailer segment that there was an Easter shift, and so a big part of that business can be affected by the timing of Easter and it moved into first quarter. And the work -- some of the work they do in-store, frankly, it reduces pretty significantly right ahead of holidays. And so that we saw a reversal of in the month of April. So that’s another example in a different segment, in the Retailer segment, where we saw that. And then I mentioned earlier as well that we’ve taken actions on the cost side that really reflect the client exits that we had in the first quarter and so that should flow through as we go forward in the second quarter. We’re starting to see some of that in the early numbers for April.

Excellent. Thank you so much.

Thank you.

Thank you. There are no further questions at this time. I’d like to turn the floor back over to Dave Peacock for closing comments.

Thank you, Operator. We appreciate your time this morning and your interest in Advantage Solutions. We are excited about our prospects this year and look forward to updating you on the progress to expand our competitive advantages as a partner of choice with clients and customers. Thanks again for your time today.

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