Advantage Solutions Inc. Q2 2026 earnings call

Good morning, and thank you for joining us. First, I want to acknowledge our teammates. We have over 60,000 people who spend the majority of their days in service of our clients and customers. From our retail merchandising reps moving between stores to ensure our clients' products are on shelf, to samplers delighting our retail partners' customers with a pleasant experience and great products, to our key account managers calling on retailers in an effort to add a little more push behind the great brands that we represent. These and thousands of others work in pursuit of exceeding client expectations, and I appreciate the energy and effort they bring each day. Second quarter net revenues of $757 million were up 3% year-over-year, and 4% excluding the effect of divestitures.

While adjusted EBITDA of $76 million declined 12% and declined 9% excluding divestitures, reflecting several one-time factors and mixed performance across our segments. Experiential Services delivered another very strong quarter, and both demand signals and execution continued to improve across this business, giving us confidence in second half growth. Retailer Services revenues increased 3% year-over-year, but adjusted EBITDA was down approximately 25% year-over-year, reflecting project timing and costs associated with early-stage project work that we do not anticipate repeating. We expect growth in the second half of the year. In Branded Services, revenue declined 13% year-over-year and was down 11% excluding divestitures, as the recovery is taking longer than expected, and we are impacted by the same persistent challenges as our CPG clients.

Cash generation remains solid, with $19 million in adjusted unlevered free cash flow, despite an incremental working capital impact from our SAP final phase implementation. We ended the quarter with $102 million in cash. Turning to our growth initiatives, clients continue to prioritize programs that can demonstrate clear ROI, support trial and discovery, and convert demand into purchases. That trend aligns directly with the capabilities we have built across Advantage. Experiential Services is the clearest proof point. Demand for product demonstrations continues to exceed our expectations, with meaningful opportunities to expand event volume across existing customers and support growth with new customers. We are adding capacity where demand signals are strongest and remain confident in our ability to recruit and staff as needed.

We have seen strong growth across the spectrum of customers we serve, both in the U.S. and internationally, with even higher daily event volumes in our international regions. We believe this provides a useful blueprint for what can be achieved in the U.S. as programs mature and as we continue to improve labor readiness and execution. In our CPG-facing work, Branded Services merchandising projects were a relative bright spot. We are focused on scalable, high-return opportunities that can become durable, long-term relationships as we deploy a highly trained and experienced team against what we see as recurring issues in out-of-stocks at retail. In addition, our Pulse selling system is improving visibility into on-shelf availability, item velocity, and distribution gaps, allowing our teams to target resources more precisely and helping clients connect spending to measurable returns.

Finally, we continue to develop our alert-based execution model, allowing Advantage to see out-of-stocks, distribution voids, and missing displays in almost real time. Turning to our productivity initiatives, our productivity agenda spans labor planning, process standardization, technology, and operating visibility. Together, these initiatives are designed to manage costs prudently, improve execution quality, and create capacity to support growth. Our centralized labor model continues to enhance labor planning and execution, which is critical as Experiential Services demand and Retailer Services project activity increase. Experiential execution rates of approximately 95% in the quarter demonstrate the efficacy of this model. We are also in the final stages of our enterprise technology transformation, and these new systems will help us support improved data integrity, process discipline, and operating visibility.

We plan to complete the heavy lifting of this transformation this year, and in 2027, we expect to fully leverage these platforms and realize the benefits of the investments we've made to drive better decision-making and efficiency. While many companies are grappling with the existential risks from AI, we are focused on the opportunities to enhance our physical network that was built over decades. We continue to prioritize integrating AI across Advantage in pursuit of better service levels, a better teammate experience, and greater efficiency. We have established a governance structure, including a newly created Chief AI Officer role that is tightly aligned with our tech and data teams. We are prioritizing training and fluency across our organization and the deployment of the right tools to our teammates.

We remain focused on empowering our people to opportunistically employ a wide variety of AI tools that best fit their respective use cases and to find efficiencies in everything they do. We are making sure our teams are educated on the potential of these AI models, how to use them effectively, and encouraging them to find opportunities for efficiency, speed, or enhanced service quality. Our priorities range from personal productivity to enterprise-wide initiatives that deliver faster insights and more precise resource deployment. We have several pilots we have developed across our workforce operations that we expect to increase efficiency, including a new event manager compliance tool, photo verification tool, cart list automation, and a supervisor intelligence dashboard. We continue to develop new AI-led opportunities to bring both efficiency and operational excellence to our business.

Turning to the macro environment, the core consumer themes and K-shaped economy we discussed last quarter have persisted. Lower and middle-income households remain highly focused on value, with purchases increasingly planned around promotions and price points. Higher income consumers continue to shift portions of their baskets toward healthier and better for you options, but they are also becoming more deliberate about the value they receive. Emerging brands continue to also gain share of the industry in many categories as consumers seek variety and gravitate to product discovery. Value-seeking behavior is broadening across income groups. We are also seeing greater price competition among large retailers seeking market share gains and traffic. These trends reinforce the need for highly measurable, cost-effective programs that can drive trial, discovery, and conversion.

Advantage is well-positioned to help clients navigate this volatile operating environment by supporting their growth plans and helping them gain market share in as efficient a manner as possible. We have adapted our business accordingly by emphasizing execution quality, disciplined staffing, and measurable ROI. As a scaled outsourced labor provider, we are well-positioned to support clients seeking flexible capacity and greater efficiency. We continue to monitor energy prices, tariffs, and geopolitical developments, which are affecting consumer behavior. Our outlook does not incorporate a major change in underlying consumer health. Now, turning to our segment results. Experiential Services delivered another very strong quarter. Event volumes increased 18%, with strong incremental margins supported by healthy demand across existing customer relationships and new vendor activity. With revenue growing at a healthy rate, improving profitability remains a priority even as we invest in infrastructure to support higher long-term demand.

We are focused on labor efficiency, stronger training and safety protocols, consistent execution, and a shift toward higher return demos. We expect continued momentum in the second half of the year. In Branded Services, the recovery is taking longer given constrained CPG spending, procurement-driven dynamics, client insourcing, and select client losses. Our focus is on stabilizing the revenue base while protecting profitability. That means strengthening client retention and executive engagement, improving pipeline conversion, hiring and retaining the right talent, and demonstrating measurable ROI through our data, analytics, and execution capabilities. CPG merchandising projects performed well this quarter, and we are hopeful this is a leading indicator for the rest of the business. While we are not assuming a near-term inflection, we do expect modest improvement in the second half of 2026.

Retailer Services had a softer quarter, primarily due to project timing, a difficult comparison with an unusually strong prior year period, and higher execution costs on merchandising projects. We view these factors as temporary and largely specific to the second quarter. We expect performance to improve sequentially through the second half as larger projects ramp up. The pipeline remains encouraging, and we expect project-related earnings volatility to moderate in the second half. Our priorities in Retailer Services are clear: align staffing with demand, improve execution discipline and operating consistency, and better match costs with associated revenue streams. Cash generation remains a structural strength of our business and a core priority. We saw unlevered free cash flow of $19 million, or 25% of adjusted EBITDA in the quarter. For the first half, unlevered free cash flow was 79% of adjusted EBITDA.

We have seen some expected pressure on cash flow from working capital, which we believe will improve in the second half as we have moved past our final SAP implementation phase. Our capital allocation priorities remain unchanged. We intend to direct free cash flow primarily toward debt reduction while maintaining the liquidity and strategic flexibility required to operate the business. Turning to our outlook, we are taking a balanced view of the remainder of the year. That view reflects three dynamics: continued strength in Experiential Services, improving Retailer Services performance with a more normalized earnings cadence in the second half, and a more gradual recovery timeline in Branded Services. We are reiterating our full year 2026 revenue and adjusted EBITDA guidance ranges, reflecting the successful execution of our growth initiatives and in consideration of the investments we are making into our business and our teammates.

Thank you, Dave, and welcome to everyone joining us today. I will review our second quarter performance by segment, discuss our cash flow and capital structure, and provide additional detail on our outlook. I will outline our business results on a reported basis and also on an adjusted basis for divestitures, which weighed on our year-over-year performance. In the second quarter, businesses we have divested represented a year-over-year headwind of approximately $5 million to revenues and approximately $3 million to adjusted EBITDA. For 2026, we still expect divestitures to represent a year-over-year headwind of approximately $20 million to revenues and over $10 million to adjusted EBITDA. Turning to our divisional performance and starting with Branded Services. In the second quarter, we generated $224 million of revenues and $22 million of adjusted EBITDA, down 13% and 36% year-over-year respectively.

Excluding divestitures, revenues were down 11% and adjusted EBITDA was down 30%. The segment continues to face pressure from ongoing client insourcing, softer CPG spending, and client losses. However, we saw encouraging activity in CPG merchandising projects, which contributed positively to results in the quarter. Our focus remains on stabilizing the revenue base, improving pipeline conversion, client retention, and maintaining disciplined cost management. We continue to expect gradual improvement through the balance of the year. Turning to Experiential Services, we generated $296 million of revenues and $34 million of adjusted EBITDA, up 19% and 32% year-over-year respectively. Results were driven by accelerating demand for product demonstrations, higher event volumes, and strong operational execution. Demand remained healthy across both existing and new customers, and we continue to see opportunities to further increase event volumes in the second half of the year.

We are confident in our ability to recruit and staff to meet this increased demand. Finally, in Retailer Services, we generated $237 million of revenues and $20 million of adjusted EBITDA, up 3% and down approximately 25% year-over-year respectively. Performance was impacted by project timing, a difficult comparison with unusually high project activity in the prior year, and higher costs related to execution issues on a new project in the quarter. We view these as unique and temporary factors and expect sequential improvement in the second half versus the first half performance. We also have a stronger project pipeline in the second half and expect project-related earnings volatility to moderate as these programs ramp. Offsetting some of these headwinds, our private label business delivered a solid quarter as the industry backdrop became more favorable and the channel mix drag eased again modestly.

Our focus remains on execution, staffing alignment, and operational discipline to better align costs with project activity and drive more consistent earnings growth. From a cost perspective, during the quarter, we saw more favorable health insurance cost trends, which have been a meaningful pressure point over the last year. Moving to the balance sheet and liquidity, we ended the quarter with $102 million in cash, reflecting our continued focus on disciplined capital management and strong cash generation. Our net debt level stood at approximately 4.5x trailing adjusted EBITDA. Turning to cash flow and working capital, cash generation remains a core strength of the business, and we view it, along with working capital discipline, as important long-term shareholder value creation drivers.

Our Day Sales Outstanding, or DSO, remained elevated during the second quarter, primarily due to the impact of our final SAP implementation and customer payment timing, both of which we continue to view as temporary. We expect DSOs to improve steadily through the remainder of the year, including in the third quarter, supporting strong full-year cash flow generation. Adjusted unlevered free cash flow was $19 million in the second quarter, with a conversion rate of 25%. The performance this quarter was negatively affected by an increase in DSO as expected. We expect strong working capital improvement in the second half, which will contribute to free cash flow generation and support our cash flow outlook. Moving on to capital allocation. This year, we have focused on debt reduction, particularly during the first quarter around our refinancing. In the second quarter, we repurchased approximately $15 million of our shares.

These repurchases were primarily intended to help offset dilution from stock grants and exercises. As we look ahead, free cash flow will primarily be directed toward debt reduction. Finally, turning to our outlook. We are encouraged by our second quarter performance and continue to maintain a balanced outlook for the remainder of the year. We are reiterating our full-year 2026 revenues and adjusted EBITDA guidance ranges, given a solid first half of the year. However, we've updated our guidance for interest expense and capital expenditures, which are now slightly lower than previously forecasted. Our free cash flow outlook remains unchanged. From a business perspective, we continue to see strength in Experiential Services, sequential improvement and growth in Retailer Services, and a more gradual recovery in Branded Services on its path towards stabilization.

Key factors influencing our outlook include Experiential Services demand and execution, Retailer Services project timing and second half project ramps, and the pace of recovery in Branded Services. Overall, we've taken a prudent view of the second half of the year. Regarding quarterly cadence, given a stronger first half performance, our guidance implies that second half adjusted EBITDA will represent approximately 53% of the full-year total. We expect fourth quarter adjusted EBITDA to be higher than third quarter adjusted EBITDA. Our focus remains on improving execution, raising profitability, and delivering consistent cash generation. Thank you for your time, and I'll turn it back over to Dave.

Thanks, Chris. We remain encouraged by the momentum in Experiential Services and the expected improvement in Retailer Services as larger projects are ramping up. At the same time, we continue to focus on stabilizing Branded Services while protecting profitability. We are also advancing our productivity initiatives across labor planning, process standardization, technology, and operating visibility while integrating AI to support stronger service levels, a better teammate experience, and greater efficiency. Together with our focus on disciplined capital allocation and strong cash generation, we believe these efforts position Advantage to build a more durable and profitable business over the long term. I want to thank everybody for joining us today, and we look forward to speaking with you again next quarter. Operator, we're now ready for questions.