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AS

Advantage Solutions Inc. (ADV)·Q3 2024 Earnings Summary

Executive Summary

  • Revenues were $939.3M, down 7.9% year-over-year due to portfolio simplification and JV deconsolidation; organic revenues grew ~2% with strength in Experiential, while Adjusted EBITDA rose 8.1% to $101.0M and margin expanded to 10.7% .
  • Management reaffirmed full-year guidance for low single-digit growth in revenues and Adjusted EBITDA, cut net interest expense guidance to $150–$160M (from $155–$165M), and expects Capex around the low end of $65–$80M, citing operating efficiency gains and disciplined capital allocation .
  • Capital allocation: ~$80M of voluntary debt repurchases and ~$13M of buybacks (3.5M shares) in Q3; net leverage at 3.9x on LTM Adjusted EBITDA with $196M cash on hand .
  • Operational catalysts: Experiential events-per-day up ~11% YoY with demand and timing benefits; Retailer Services benefited from increased merchandising activity; Branded Services showed improved execution despite market softness and prior client exits .

What Went Well and What Went Wrong

What Went Well

  • Experiential Services revenue up 11% YoY to $342.7M and Adjusted EBITDA up 41% to $23.3M, driven by strong demand and an ~11% increase in events per day; management: “Strong client demand... drove double-digit events per day growth” .
  • Retailer Services revenue up 1.9% YoY to $265.2M; Adjusted EBITDA up 10.8% to $28.8M on solid execution in talent deployment and cost discipline .
  • Adjusted Unlevered FCF conversion was ~67% in Q3 ($69.0M), supported by improved working capital (lower DSOs) and lower-than-planned Capex; management paid down ~$80M of debt and bought back ~$13M of shares .

What Went Wrong

  • Total GAAP revenues fell 7.9% YoY to $939.3M (reported), reflecting deconsolidation of the European JV and earlier intentional client exits in Branded Services; net loss from continuing ops widened to $(37.3)M .
  • Branded Services revenues declined 26.6% YoY (reported) to $331.4M; segment operating loss of $(12.2)M and Adjusted EBITDA down 3.8% YoY to $48.8M due to softer CPG environment and impacts of exits .
  • Wage inflation remained a headwind, with price realization not fully offsetting pressures; management emphasized utilization improvements and pricing actions but acknowledged persistent labor cost pressures through the year .

Financial Results

MetricQ1 2024Q2 2024Q3 2024
Revenue ($USD Millions)$879.0 $873.4 $939.3
Net Income - Continuing Ops ($USD Millions)$(49.1) $(113.0) $(37.3)
Diluted EPS - Continuing Ops ($USD)$(0.15) $(0.35) $(0.12)
Adjusted EBITDA ($USD Millions)$78.8 $89.9 $100.9
Adjusted EBITDA Margin % (reported)—10.3% 10.7%

Segment Revenues ($USD Millions):

SegmentQ1 2024Q2 2024Q3 2024
Branded Services$344.5 $322.3 $331.4
Experiential Services$307.4 $319.5 $342.7
Retailer Services$227.1 $231.5 $265.2

Segment Adjusted EBITDA ($USD Millions):

SegmentQ1 2024Q2 2024Q3 2024
Branded Services$41.4 $42.9 $48.8
Experiential Services$17.1 $22.6 $23.3
Retailer Services$20.2 $24.4 $28.8

KPIs and Balance Sheet:

KPIQ1 2024Q2 2024Q3 2024
Experiential events per day YoY change+13% ~+11% ~+11%
Experiential execution rate—>92% —
Adjusted Unlevered FCF ($USD Millions)$39.1 $128.8 $69.0
Adjusted UFCF Conversion (%)49.6% 131.6% 66.9%
Net Debt / LTM Adj. EBITDA (x)4.2x 4.1x 3.9x
Cash and equivalents ($USD Millions)$118.0 $154.0 $196.1

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenues (continuing ops)FY 2024Low single-digit growth Low single-digit growth Maintained
Adjusted EBITDA (continuing ops)FY 2024Low single-digit growth Low single-digit growth Maintained
Adjusted Unlevered FCF ConversionFY 202455–65% of Adj. EBITDA; high end expected 55–65%; high end of range Maintained emphasis
Net Interest ExpenseFY 2024$155–$165M $150–$160M Lowered by ~$5M
CapexFY 2024$65–$80M (lowered in Q2) $65–$80M; around low end Maintained; narrowed to low end
IT Transformation Capex (2024–2026)Multi-year$140–$150M (lowered in Q2) $140–$150M Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3)Trend
AI/technology modernizationLaunched AI core competency; image recognition; ERP, cybersecurity, cloud; Genpact/TCS partnerships Continued ERP replacement, cybersecurity, cloud, data lake; prioritizing AI in contract management, routing, HR/workflows, analytics Consistent investment; expanding use cases
Labor/wage inflation & pricingPersistent wage inflation; price realization not fully covering; use mix and utilization Wage pressures moderating; focus on better utilization and fair pricing to approach equilibrium Slightly improving spread; operational mitigation
Experiential demand & recoveryEvents per day up; execution >92%; ~88% of 2019 levels; sequential growth expected Events/day up ~11%; outperforming expectations; still below 2019 but progressing Strengthening; timing shift aided Q3
Promotions & retail cadenceRetailer focus on private brands, displays; seasonality impacts SAS/merchandising More promotions generally positive for unit volumes and merchandising work Tailwind to Retailer and Branded
Portfolio simplification/debt reductionDivestitures (Adlucent, foodservice, JV); debt/paydown; buybacks Continued deleveraging; ~$80M Q3 paydown; buybacks to offset dilution Ongoing balance sheet strengthening

Management Commentary

  • “We continued to execute on our operational priorities, which resulted in organic revenue and Adjusted EBITDA growth in the quarter… We remain committed to achieving our 2024 guidance” — CEO Dave Peacock .
  • “Experiential Services increased revenues by 12%… Adjusted EBITDA grew 41%… events per day increased year-over-year by 11%” — CFO Chris Growe (segment remarks) .
  • “We are modernizing technology… investing in a data lake for enhanced analytics and a full utilization of AI where applicable… partnering with IBM to outsource procurement” — CEO .
  • “We generated approximately $69 million in adjusted unlevered free cash flow… Drivers included reduction in DSOs and lower-than-planned CapEx” — CFO .

Q&A Highlights

  • Macro/Branded outlook: Management sees mixed category dynamics with private label unit growth; cautiously optimistic for 2025 with recent GDP resilience; no 2025 guidance given .
  • Experiential performance: Outperforming expectations; progressing toward but still below 2019 levels; events planning can shift between quarters .
  • Wage/pricing spread: Wage inflation moderating; improved labor utilization and fair pricing to approach equilibrium; margin management via hours and mix .
  • Competitive landscape: No specific impact yet from a competitor merger; possible future opportunities as competitors integrate .
  • Timing shift quantification: Explicit acknowledgement of Q4-to-Q3 pull-forward in Experiential and Retailer; Q4 Adjusted EBITDA growth to be similar to Q3 .

Estimates Context

  • S&P Global consensus estimates for Q3 2024 were not retrievable at this time due to access limitations; therefore, we cannot definitively assess beats/misses versus Street for revenue, EPS, or EBITDA. Values retrieved from S&P Global were unavailable due to API limits.

Key Takeaways for Investors

  • Experiential momentum and Retailer execution are offsetting Branded softness, driving Adjusted EBITDA growth and margin expansion in Q3 despite reported revenue declines from portfolio changes .
  • Cash generation and deleveraging continue to improve the balance sheet; net leverage fell to 3.9x with $196M cash, supporting reduced interest expense guidance and optionality on future debt actions .
  • Transformation/technology investments (ERP, AI, data lake) and procurement outsourcing should underpin operating efficiency and margin resilience through 2025 .
  • Near-term: Expect similar YoY Adjusted EBITDA growth in Q4 as Q3, with timing shifts normalizing and continued strength in Experiential; Capex anchored at the low end .
  • Medium-term: Branded margin trajectory improving via utilization and cross-selling, but macro and private label mix warrant caution; watch wage inflation and pricing realization spread .
  • Capital allocation focus remains on deleveraging and offsetting dilution; ongoing buybacks and opportunistic debt repurchases support equity value accretion .
  • Other Q3-relevant items: Amazon Gold Tier award underscores omnichannel execution capabilities and digital sampling scale, supporting Experiential growth narrative .

Additional Notes and Cross-References

  • Non-GAAP definitions and reconciliations were provided in the 8-K exhibits; Adjusted EBITDA excludes interest, taxes, D&A, goodwill impairments, warrant revaluations, stock-based comp, reorg costs, litigation, and other specified items .
  • Segment operational detail: Branded faced market softness aligned with CPGs and impacts of earlier client exits; Experiential benefited from event timing and demand; Retailer saw increased merchandising activity and cost discipline .
  • FY 2024 outlook reaffirmed: low single-digit growth in revenues and Adjusted EBITDA; Adjusted UFCF conversion targeted at the high end; net interest expense reduced; Capex around low end of range .