All right, everybody, we're gonna get going here this morning. Welcome to the, I don't know what year it is, the Annual Canaccord Growth Conference. I think this is our first session of the day here. So, you know, happy that everyone could make it to the conference. It looks like another busy day, and we're gonna kick off our session today with Advantage Solutions. I'm Joe Vafi, Equity Research Analyst here at Canaccord, focused on fintech and business services. And we're happy to start the day off with David Peacock, who is the CEO of Advantage Solutions. Advantage is a somewhat unique play in the public market setting, providing key services into the broader CPG and retail industry, and doing so as a market leader.
But even as something of an industry juggernaut, with over $3 billion in annual revenue and 70 million labor hours yearly, Advantage is still on its own journey to generate more shareholder value. Almost two years ago, Dave took over as the company's CEO, using a strategy to refocus the company on some of its core offerings and accelerate profitable growth. Today, we see ADV shares as a solid play, as an industry leader in a steady sector, but also we see upside in the story as a deleveraging play against the backdrop of a solid cash flow engine. So, thanks for being with us here today, Dave.
Thanks, Joe.
Yeah. So maybe to begin, could you introduce Advantage to us in your own words and the value proposition you're bringing to the market?
Absolutely. We are really at the nexus of CPG and retail. And we convert shoppers into buyers, quite simply. We do it through a number of services. So if you walk into a store, and you walk through a store and see the items on shelf, see the displays, see folks sampling, we have a hand in all that. Our teams, and you mentioned the 70 million labor hours, are out executing the plans that we help devise with our CPG partners and the retailers to capitalize on market dynamics, whether they be, you know, good or bad.
You're gonna see different kind of macro environments, but the nice thing about Advantage is we've been able to grow through both good markets and bad markets and so there are a number of examples of different things that we can do to help our retailer partners and CPG partners, manage and adjust to different shopping behavior.
Great. And your business is broken down into three segments. Maybe we kind of just drill down a little bit into each one. We can—you have Retailer, Branded, and Experiential, so-
That's right. So we re-segmented our business. So we've been in a process over the last year and a half, where really, we were working to simplify the business, transform the business, and ultimately accelerate the business. And in simplifying the business, we did a couple things. We re-segmented the business to align our businesses with or by customer, if you will. So our Branded Services are the services we provide CPG partners, which are primarily helping sell in to retailers that they don't sell directly to, and that's the joint business planning, the price promotion planning, all the things, and then executing those plans in-store with retail merchandising teams. On the Retailer Services side, we work with them on a couple levels. One, we will work on their private label strategy.
So if you walk into an average retailer, a lot of them will have 6,000 different SKUs in private label. They're working with thousands of contract manufacturers. We sit in the middle of that. We help them with their planning, their assortment planning, their new product development, and then we help source that through contract manufacturers and then manage the quality of those products. And then the experiential side, you know, whoever has walked into a Costco or a BJ's up here in the Northeast, you've seen our people sampling products. So we're helping sell product through the system. And so, that was a big part of our simplification strategy. The other part was basically taking a holding company of disparate businesses and aligning it into an interconnected enterprise, and doing so with shared services as the foundational support for that.
And so that is another piece of our simplification. And then we have launched the transformation process through that, and that continues as we sit here today.
Great. And then, you know, there's a macro overlay in every sector. Maybe you could kind of give us a view of, you know, how the macro is affecting your business across your, your kind of three segments as well.
Absolutely. So, right now, there has been a lot written about the fact that the consumer is challenged, and that if you look at the consumer on the kind of the lower end of the economic spectrum, they're really struggling in the current economy. And there's been a bit of a slowdown in the consumer spending. We see some of that. I'd say first, this is a company, ours is, that has grown through difficult economic times, including 2008 and 2009. The reason we can do that is, and we have confidence in that, is that we provide a lot of the solutions that help our clients and customers, and we have over 4,000 clients, manage through these difficult times.
An example on the CPG side, as people are looking for more deals and price promotions and things like that, we will actually work with our CPG partners. As I mentioned before, we help sell in those types of programs to retailers. So there's an increased demand for that and an increased frequency of interaction between us and retailers in support of our CPG brands, in new product development, and then getting those new products on the shelf. You're gonna see a lot of CPGs work toward capturing that value consumer. Then if you come over to the retailer side, you'll see growth in private label. That's been written about quite a bit for people who follow the consumer sector. That feeds right into our capabilities in helping them manage, helping retailers manage their private label businesses more efficiently.
Really, regardless of the kinda economic backdrop, we're able to generate demand for our services, or we're able to capitalize on demand for our services, in all of our segments, including experiential. You know, you're seeing a significant growth in events, and we track sampling events, over 4.5 million that we have per year and growing, because people are trying to stimulate growth. They're trying to stimulate unit and volume growth within this kind of environment.
Great. And then, since you've been at Advantage for about the last two years, you've really been refocusing the company a lot, right? There's been, I mean, I think historically, Advantage had been a consolidator in the market-
That's right.
As we can say. Then, I think the strategy's changed, where you're really refocusing the company a little bit back on your core competencies, right? And you've done a lot of M&A on the divestiture side. Maybe we kinda discuss, you know, where you are in that journey now of the refocusing of the company. I know it's been pretty busy on the transaction front over the last 6 or 9 months here.
Yeah, we've kept our finance team pretty busy. So, we've sold ten companies over the last, call it, year or so, with about $280 million dollar proceeds in 2024, another $100 million or so in 2023. Those proceeds effectively are going to repay debt and help us deleverage. We were at our peak 4.6x debt to EBITDA. We're around 4.1 right now, with a plan to get to 3.5 long- term. That was part of our simplification strategy as well. As I mentioned, there were a number of businesses that we had that just weren't core to what we were doing, and frankly, were better served in someone else's hands, and things like digital marketing and other businesses that we've divested from.
And that allowed us to focus more on that core kind of CPG sales and merchandising business on the retailer, you know, I mean, sales and merchandising, and for them, the private label business being really important for them in capturing consumers and value and the experiential business. So that simplification process and this portfolio rationalization is largely behind us. And so now we just continue on with our transformation as we're taking some of the proceeds that are being generated in cash from the business and investing them, especially in tech enablement.
Great. Maybe we talk about that a little bit. Divestiture's mostly done at this point-
That's right.
More or less, but still some opportunity, I guess, on the cost side in terms of maybe overall cost structure as well as efficiency within that cost structure. Is that right?
Yeah, that's exactly right. So, we're really modernizing our capabilities on the tech side. Some of these being foundational systems we announced. You know, our work on an ERP is an example of that, which is gonna yield benefits for us, you know, starting early next year and moving forward, even as we're implementing. But also, a lot of tech enablement that drives productivity within our business. So we mentioned the 70 million labor hours. You know, the objective for us is to, you know, ultimately deliver growing revenue for the same or less hours. And how do you do that?
So we've partnered with one company, for instance, that has a technology that allows you to walk down an aisle in a store and within about 30 seconds, read every product on the shelf -let you know if it's in or out of stock, it, it reads the tags to confirm that it's properly placed, and checks the pricing. That normally would have taken, pick a number, 20, 25, 30 minutes for someone to go item by item. So that efficiency allows us then to focus more of our efforts and time in both remedying those issues and then capitalizing on sales opportunities, like building displays, ultimately moving into the next store.
One way to think about it, and a lot of people are saying, "Well, merchandising and all these sort of consumer industry terms, what, what are you talking about?" I always say, if you, if for those of you've walked into a store around Easter time is a great example, and had your kids pulling on you, trying to get you to buy candy, and you see all the M&M Mars products throughout the store, and you've got that, that aisle kind of set up, especially the seasonal aisle for that holiday. That's all work we'll do on behalf of M&M Mars, is a good example. So being able to leverage technology like that to diagnose those shelves, 'cause you can see that product rotate very quickly, especially as the holiday approaches, is really, really important as an efficiency driver.
That's just one example of the many areas that we're leveraging enhanced investment and data analytic capabilities, and then ultimately, AI to help drive our business.
That's great. Maybe we haven't really talked about this new technology. I mean, is that something that you would think of rolling out to a lot of your team and employees? I mean, if that by itself would be a huge productivity gainer, right?
We will. Yeah. We're in the process right now of doing that. Piloting, making sure we get ways of working. You know, I always say that technology is a great enabler. It's not necessarily the strategy. You've got to have a strong strategy that has a process underpinning it, and then the technology can help bring efficiency to that process. So that's the exact, you know, situation we're in right now. And then we're leveraging, you know, through enhanced data capabilities and data capture, AI in other parts of our business. Contract management system, with over 4,000 clients, we have a number of contracts across all the different services we provide. Being able to manage that complexity, using a contract management system, for instance.
HR workflows, how we route our merchandisers store to store, and do so with some knowledge and awareness of what we call impactability within the store. All of that is supported by the investments we're making in data analytics within our business.
Sure. That's great. And then, I think, you've also partnered with a couple big consulting firms or outsourcers to help bring efficiency to the business as well, right?
We did. And so, you know, we have really two kinds of partnerships. Partnerships are really important for us. I think in the past, we were acquiring capabilities, which can come with a premium and some risk as it relates to, you know, someone coming along and creating a technology or capability, that may diminish the value of what you've acquired. We're partnering a lot more with people who are experts in their field. So, for instance, our partnership with Genpact is very exciting.
In working with consumer products companies, we'll do a lot of administrative work, and this is in the areas of, like, item setup, when you have a new item within a store, contract writing between a CPG and a retailer, you know, managing the volume of price promotions between a CPG and a retailer. Genpact is in the back. We've got people within our company that are the interface with our CPG and retail partners, but Genpact is in the back, helping us manage that complexity, kind of leveraging their large AI platform is one example. So that's one partnership. I mentioned the partnership with the company that is providing kind of this AI solution as it relates to scanning the shelves.
So those partnerships I put in the category of capability building, and then the other partnerships we're looking at are more, kind of business-driving or revenue-driving partnerships, and that's our Swiftly partnership that we recently announced, literally last week, where they provide technology services to help retailers, especially kind of midsize, launch retail media networks. But what they didn't have was the in-store component to help execute against that, and that's where we come in as a partner. And then another one is L.A. Libations, which was recently announced. They have probably been the best organization at launching emerging brands. But in today's environment, people are looking for those brands more quickly. With social media and the internet and all the websites, they learn about these brands more quickly, and they want them more quickly.
L.A. Libations was struggling in scaling because they didn't have the vast network that we have. So we've got thousands of people in tens of thousands of stores every week that are able to ensure that those kind of products get on shelves very quickly and get displayed very quickly, so consumers can, can get their hands on them.
That's great. And you talked about your, you know, this vast number of people in all these stores, L.A. Libations, I believe it's a joint venture structure, right?
It is. We're partnered with them. In many cases, they will develop brands or work with founders who have developed brands. And like I said, they've done a good job building great brands, but they often had to kind of realize and exit very quickly because they weren't able to scale. They have to, they have to get that brand in the hands of a larger partner, and now we're able to help them scale that brand more quickly.
Is that a, that JV structure? 'Cause you have the scale, they have brands. It feels like there's probably a lot of kind of emerging CPG players like that, and, I mean, it feels like you could probably do a few of these JVs, maybe. I don't know.
Well, and I'll tell you, we do a lot in the—with emerging brands. So within our business, in the CPG side, you know, we've got, you know, a lot of industry leaders. I mentioned one, you know, when we were talking about Easter candy, but we've got a lot of emerging brands. I said we have 4,000 clients, and so, you know, we do a lot in a lot of categories. Beverage is an interesting category, and it's actually my background, having been at Anheuser-Busch, for 20 years. A lot of beverages are direct store delivered, and so they have their own route to market. What you find with these emerging beverages is they struggle to kind of break through the different DSD platforms, and so it's giving us exposure to a category in beverages that we were a little underrepresented in, because they have their own route to market.
Yeah.
It's a unique partnership in that regard. And then there are some other products within the partnership that go beyond beverages or some, you know, snack products and some other things that are exciting, and that we're just thrilled to be partnered with them.
Great. And then, 70 million labor hours a year is a lot. You know, salaries and wages have gone up with this inflationary environment we've been in. Kind of where are we in that cycle for you? And I believe that you have the ability to, you know, to pass some price on to customers as well.
Yeah, I mean, I always say when you look at, you know, the wage environment, first, a couple of things, you know, we're still coming off of this, the ripple effect of COVID, and we see that throughout our business. You know, we see it in our Branded Services business where traffic really moved to the retailers that we, you know, serve most. And then the inflation, 'cause we're paid on commission, flowed through, all the way through kind of 2022. And now you're seeing as those savings that consumers had built up, you know, are being spent down, and the economy's kind of naturally slowing a bit. You're seeing the impact of that.
You also saw, as you just mentioned, what I'd say sort of, you know, abnormal wage inflation and lack of labor availability, that seems to be easing a bit. And our long-term outlook is that, you know, those things will revert back to kind of more normal levels. But until then, we've got three levers to pull as it relates to, you know, addressing wage increases. One, as you mentioned, is price. And we've got a lot of, customers that understand the wage environment, especially part-time labor wage environment out in the market, and we're able to address that, with them, and they, they've been productive partners in those discussions. So there's price realization.
There's productivity, and we talked about one example using technology, but how can we drive productivity within our business, and how we're routing? And this gets down even to the minute task level sometimes, because when you've got 70 million labor hours, you've got a lot of repeatable tasks in your business. And so if you can find ways to do things a little more efficiently, and then-
Yeah, big-
You can ripple that through, it's significant. And then mix. You know, our services have different margin levels, and so we're able to work with clients and customers, to help kind of capture, by managing our margin mix, you know, slightly better margins to help kind of offset that. So, you know, three levers to pull as it relates to cost environment, but at the same time, you know, a positive outlook as it relates to wage inflation, I think, long term.
Got it. So hopefully, we're through the worst of that. We've got some nice refocus on the business. Divestiture is mostly done. And in our view here, as analysts, you know, we think that this is a nice deleveraging play, right? And so you brought your debt ratios down, and I believe you've got a longer-term goal to keep bringing them down or a medium-term goal, right?
Right.
To maybe 3.5 turns.
Right.
Right, from currently, I think you're at about-
4.1.
4.1.
Right.
Right. You know, we see that as a pretty big catalyst here in this name. Anything else you want to add, Dave, before we run out of time?
Yeah, no, I think just, look, we're excited. You know, it's a business where, again, you said 4,000 clients, 70 million labor hours. So there's obviously complexity, but it's often taking that complexity and converting it into, you know, an advantage, pardon the pun. And 95% client retention rate. Average client's been with us 15 years, especially among our larger clients.