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Yahoo
13-05-2025
- Business
- Yahoo
Q1 2025 Advantage Solutions Inc Earnings Call
Ruben Mella; IR; Advantage Solutions Inc David Peacock; Chief Executive Officer, Director; Advantage Solutions Inc Christopher Growe; Chief Financial Officer; Advantage Solutions Inc Joseph Vafi; Analyst; Canaccord Genuity Corp. Unidentified Participant Faiza Alwy; Analyst; Deutsche Bank AG Operator Greetings, and welcome to the Advantage Solutions first quarter 2025 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce Ruben Mella, Vice President, Investor Relations. Thank you, Ruben, you may begin. Ruben Mella Thank you, operator. Welcome to Advantage Solutions' first quarter 2025 Earnings Conference Call. Dave Peacock, Chief Executive Officer; and Chris Growe, Chief Financial Officer, are on the call today. Dave and Chris will provide the prepared remarks, after which we will open the call for a question-and-answer this call, management may make forward-looking statements within the meaning of the federal securities laws. 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 forward-looking statements are qualified in their entirety by such factors. Our remarks today include certain non-GAAP financial measures, which are reconciled to the most comparable GAAP measure in our earnings release. As a reminder, unless otherwise stated, the financial results discussed today will be from continuing operations and revenues will exclude pass-through now I would like to turn the call over to Dave Peacock. David Peacock Thanks, Ruben. Good morning, everyone, and thank you for joining us. Before we get started, I want to thank my teammates for their relentless commitment to our clients in this highly unprecedented time. Their unwavering focus on our clients and customers is first quarter revenues of $696 million and adjusted EBITDA of $58 million were down 5% and 18%, respectively, from the prior year. While the headline figures highlight a year-over-year decline, intentional client exits and anticipated transformation-related investment represented the majority of the adjusted EBITDA decline in the quarter. We were also negatively impacted by the calendar with a late Easter and 1 less working day weighing on Q1 results as we the quarter progressed, consumer confidence waned, followed by increased uncertainty caused by tariff concerns. This led to lower-than-expected consumer purchases, resulting in some clients and customers reevaluating their spending levels and the timing of events and programming. We also saw lower year-over-year order volumes in many CPG categories as consumers pull back and retailers reduced inventories. The result was a softer environment in the first quarter, which created some near-term volatility for our business, particularly driven by channel shift, trade down and overall reduced consumption. While we primarily service consumer staples categories where product demand is traditionally more stable, we are not immune to shifts in consumer sentiment and that said, the environment also brings potential opportunity for our business as we partner more closely with our clients and customers to focus on solutions that help them reduce their costs and drive overall efficiency. At this point, despite turbulence in the macroeconomic environment, our near-term new business pipeline is robust, and we will continue to help existing clients navigate any tariff impacts through our breadth of product offerings. We will continue to monitor the situation very closely. And while we make experience challenges in the near term, we remain optimistic about the future. Advantage has a track record of performing well through recessionary environments. And as a largely domestic services business with no manufacturing, we do not have meaningful direct tariff exposure from a supply chain or cost first quarter performance was impacted by a more challenging labor market, which resulted in difficulties fully staffing events and projects across both our experiential and retailer services segments. These shortfalls were exacerbated by intentional turnover and attrition designed to upskill our talent acquisition teams in some of our field management. We've implemented new processes and have added resources to our talent acquisition teams to help close the gap. These process enhancements are already beginning to yield benefits in Q2, and we are confident that our high-volume talent recruitment optimization and broader labor utilization investments will drive greater access to talent a higher level of retention and enhanced efficiency in the back half of this year and to our segments. In Branded services, we're seeing expected headwinds related to our contraction in consumer spending retail inventory destocking and reductions in discretionary marketing budgets. In response, we're continuing to adapt and invest behind our go-to-market next-generation selling model and feel very good about the state of our business development efforts. Retail merchandising and supply chain support, in particular, are examples of services that we provide our CPG clients to help manage their P&Ls with a tangible cost advantage during this uncertain environment. We are confident in those businesses continuing to perform well throughout this experiential services, demand remains strong for our solutions across regions and retail banners. The momentum outside of traditional sampling also continues to grow. That being said, we experienced temporary headwinds related to last quarter's customer loss and the aforementioned staffing challenges. Our staffing and execution rates are already improving in retailer services, ongoing effective price and cost discipline were offset by regional staffing shortages, which limited activity in some places in the quarter. We remain optimistic in our outlook as the client demand remains solid, and our teams continue to make progress executing our strategy to expand in adjacent services and channels. Our support for retailers is especially important in this moment as they seek to rapidly reset assortments as based on disruptions to traditional product supply in some to our investments. We are pleased to highlight that we are making significant progress on our efforts to modernize our tech infrastructure and enhance our ability to leverage analytics and to drive effectiveness and efficiency. We remain committed to establishing a leading data architecture and system foundation to yield operational savings for Advantage and better and more cost-efficient service for our clients and customers. In April, we successfully rolled out Phase 2 of our ERP implementation across our international operations without notable disruption. We are on pace to complete the implementation of our foundational data platform in the second half of 2025 and the broader cloud migration by the first quarter of have ingested significant syndicated and internal data into our recently established data lake, which is enabling more rapid deployment of AI use cases as we aim to drive more precision and speed through insights with our sales and field teams. This is manifest in how we review categories with buyers to how we determine the next best action at retail for our clients to how we deploy labor in our retailer and experiential segments. We have begun the process of rationalizing duplicative and outdated systems, which will result in significant OpEx savings over the next 2 to 3 years. Specifically, we believe the savings from this effort will offset the degree of incremental costs we are absorbing in 2025 from more modern addition, we also expect to achieve broader business efficiencies as a result of our new simplified IT ecosystem. Our IT and data investments are foundational to helping support our teammates in better serving our clients from the deployment of proprietary analytics and our selling process to greater utilization of field personnel through enhanced scheduling and routing. Another focus area of our transformation in 2025 is improving our labor utilization. We have mobilized the task force to take immediate action in both driving efficiencies across the millions of labor hours we manage at retail and improving the overall teammate have several related strategic initiatives underway. We are seeing positive results from our pilot of a new field operating organizational structure and experiential services with the efforts scaling to larger markets this quarter. The benefits include higher event execution rates and better teammate retention. We continue to have confidence in our target of over 30% uplift in availability of hours for our part-time teammates that are looking for additional hours. Our broad-scale initial rollout for a centralized labor model remains on track for the second half of 2025. This program will cover the majority of our total part-time labor hours in near to medium term. We feel confident in our ability to be a cost-leading solutions partner to CPGs and retailers in this challenging environment. Despite the confidence we have in our people and investments, we must be realistic and acknowledge a softer growth environment in the broader consumer market. Therefore, we are lowering our revenue and adjusted EBITDA outlook to flat to down low single where we stand today, we believe the tariffs and the corresponding CPG and consumer reactions can have a modestly adverse net impact on the business. While we may experience benefits from growth in private label and supply chain services, these could be offset by demand softness in certain brokerage, retail and sampling services. We can reiterate our adjusted unlevered cash flow guidance of greater than 50% of adjusted EBITDA, noting that the ERP implementation could bring greater cash flow benefit through the year as we better utilize our new systems and processes. While this year and especially the first half of this year continues to be affected by transformation investment and intentional client exits, we are confident about the long-term earnings power and cash generation potential of Advantage.I'll now pass it over to Chris for more details on our performance and guidance. Christopher Growe Thank you, Dave, and welcome to all of you joining the call today. I will tick through our first quarter 2025 performance by segment, discuss our cash flow and capital structure and reinforce Dave's guidance Branded services, we generated $257 million of revenues and $28 million of adjusted EBITDA, down 9% and 19% on a year-over-year basis, respectively. Results were driven by the aforementioned intentional client exits and client loss, partially offset by continued cost discipline. Additionally, we continue to see challenges from CPG spending pullbacks most notably in our omni-commerce marketing business. In Experiential services, we generated $221 million of revenues and $12 million of adjusted EBITDA, down 1% and 28% on a year-over-year basis, respectively. We experienced the ongoing impact from last year's customer loss as well as the headwinds from staffing issues, as Dave mentioned earlier. Demand for our services in this segment remains healthy as exemplified by 3% year-over-year growth in events per day excluding the client loss on execution rates of approximately 93%.In retailer services, we generated $218 million of revenues and $18 million of adjusted EBITDA, down 3% and 7% on a year-over-year basis, respectively. This segment was impacted by staffing challenges as well as softness in our agency business. We are starting to see dollars flow into advisory services and feel good about our staffing recovery to the balance sheet and cash flow. In the first quarter, we continued our capital discipline and made progress opportunistically reducing our debt levels. We voluntarily repurchased $20 million of debt and $1 million of shares at attractive levels. Our net leverage this year was approximately 4.4x adjusted EBITDA, including discontinued operations, higher than year-end 2024 as expected. Our new ERP system rollout in Q1 went smoothly overall, but resulted in a use of cash as we anticipated. We ended the quarter at approximately 70 days of sales outstanding, up from 61 days at the end of 2024 due to the system implementation. This was more than expected, and our team is quickly addressing this and other minor inefficiencies. In fact, we already see improvements to reporting, forecasting and transaction management in Q2 which gives us confidence that DSOs will come down meaningfully in the back half of notably in the first quarter, we reduced restructuring and reorganization costs by $16 million on a year-over-year basis. and $10 million on a quarter-to-quarter basis. We're optimistic that these costs will continue to be lower over the balance of the year as we move along our transformation journey. We ended the quarter with $121 million of cash on hand. We view the current debt and equity trading levels as attractive opportunities for value creation with our excess cash. As Dave highlighted, we are lowering our guidance to reflect the current market environment. I will focus my comments on the quarterly weighting and performance and touch on balance sheet and cash flow expected, seasonality this year is exacerbated by a few discrete items. These items include retailer inventory destocking trends, weather pattern, fewer working days and a late Easter, all impacting Q1 and as well as less transformation expense and known business wins reinforcing in the back half of the year. We are also proactively implementing cost reduction programs across the company. Consequently, we continue to believe that this year will be more back half weighted relative to to cash flow in 2025. We continue to expect adjusted unlevered free cash flow to be over 50% of adjusted EBITDA. With the potential for upside from improved working capital management as we more fully utilize our new systems and build back from our ERP implementation earlier in the year. We continue to expect interest expense to be $140 million to $150 million and CapEx to be $65 million to $75 million in the year. Depending on how the macroeconomic environment evolves, we will selectively consider adjusting our discretionary CapEx spend. We plan to use balance sheet cash to reinvest in the business and opportunistically reduce debt, subject to market conditions in order to track towards our long-term target of less than 3.5x. We would also note that from a liquidity perspective, we ended the quarter with an untapped revolving credit facility of nearly $400 million. we feel confident in our liquidity position and ability to manage the macroeconomic you for your time. I will now turn it back over to Dave. David Peacock Thanks, Chris. Despite the challenging quarter and volatile operating backdrop, I remain pleased with our team's efforts and transformation progress. We are committed to investing behind our strategic initiatives and look forward to being the best equipped service provider for our clients and customers. while generating meaningful cash flow for our shareholders once we emerge from our we are now ready for questions. Operator (Operator Instructions) Joseph Vafi with Canaccord. Joseph Vafi Thanks for the opportunity 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 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. David Peacock Joe, thanks. This is Dave. Let me probably answer both questions with the same information. We put a task force together pretty quickly and actually had anticipated a little kind of bumpiness relative to labor in the first quarter as we were making some changes both in some of our event managers and our experiential business, but also on our talent acquisitions team in both some in process and some in leadership. And 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 the 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. Christopher Growe Joe, I might add a comment there. For example, on experiential our execution rate in the first quarter was around 93%. And that -- so that's an improved rate. We're seeing that in a good place. However, it's just not where we thought it should be or where it could be. as Dave mentioned, due to some of the hiring constraints there. So I think we see that improve in Q2, not only the higher but then the kind of knock-on effect for execution, we should see a much stronger performance, especially in experiential. Operator William Reuter with Bank of America. Unidentified Participant I have to -- 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 2? Was that part of the problem? And what types of labor inflation are you seeing? David Peacock 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 1 to quarter 2, 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 some of the changes we were making. And like I said, we signaled the 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. Unidentified Participant Got it. And then in terms of the debt reduction in the quarter, -- did you repurchase term loan? Or was it bonds? And I guess, how are you thinking about that? You mentioned something about kind of like a balanced approach, I think, in the capital allocation discussion at the end of the prepared remarks. But just thoughts on debt reduction versus share repurchases? David Peacock Yes, we are -- we did repurchase some debt in the quarter. Obviously, we have a narrow window to do that. And I think going forward, as you know, we're in a year, which we're not going to generate a lot of incremental cash. We are focused on our -- on balancing the cash we have available to use that to repurchase debt. So I think it -- what I'd just say is we're going to be balanced around debt and cash. And I think we'll be kind of focused on making sure we utilize our cash appropriately for that. Unidentified Participant Okay. And was it the term loan or the bonds that you repaid or repurchased in the quarter? David Peacock We repurchased the bonds. Operator Faiza Alwy with Deutsche Bank. Faiza Alwy I wanted to ask about -- you mentioned the macro impact. And you alluded to Chances. 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? David Peacock Yes. It's a good question and 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 some cases, somewhat exaggerated inflation in the media. They'll start buying up they're stocking up in those 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 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 and 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, the data. But we are exposed more to regional grocery and a lot of that private label growth is occurring with larger retailers, mass merge, 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 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, vetting create work for our we gave a little bit of a broader outlook, just 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. Christopher Growe I can add a little bit of color here just in relation to just a couple of things quickly. We did see in our -- in retailer inventories, about a 1.5 point drag on orders in the first quarter. We have the benefit of some data from both our retailer and our branded services segment that allowed us to get a pretty good read on that. And just an item just to give you some perspective for what we're seeing across the business. And then just to follow on Dave's comment in this environment, private label supply chain as a service. There's -- these are services that are a nice level offset or balance to some of the leadership might be seeing on the retailer inventory destocking side. So we are seeing some improvement there and some nice growth there. And then underneath that, of course, I would just say we're seeing some good demand signals on the experiential side, for example, where we're seeing good demand, we'll just get the execution up, get the hiring up, we've got the kind of demand there to -- if we can get the hiring up to achieve that. Faiza Alwy All right. Great. That's very helpful. And then just on the guided software, just given where we came in, in the first quarter, -- just help us with a little bit of the quarterly phasing because my impression is that we should be expecting a much stronger EBITDA growth in the back half. And I think you've talked about that as being more sort of new business related. So just give us an update on that in terms of how you're expecting the year to play out from here? David Peacock Yes. So obviously, a little softer first quarter here overall. But a couple of things that come to mind in relation to that. So I think about the seasonality factor, we'll be a little more exaggerated first half, second half. There's 1 phenomenon we talked about last quarter, as we talked about our outlook for the year, which was a much heavier level of shared service cost increases year-over-year in the first half. A lot of that's driven by IT in our new systems, and that is -- that persists, if I can say it that way. Obviously, with a little softer revenue in the first quarter, those costs are not changed. So as a result, it did weigh on Q1. Those do come down or actually come down in the second half of the year, and we should be in a much better place in that regard and should allow for stronger I just want to also add, at the same time, Faiza, we are going through a pretty aggressive look at our cost structure here. And I think there's some cost reduction programs and ideas we have to push through the business that we're executing now. that I think will be very helpful for the second half as well. So a little more exaggerated first half, second half. And then you're going to see the lower shared service costs and the cost reduction programs really play out in the second half of the year. Faiza Alwy And then maybe just last one. Just with all of the tech transformation that you're going through -- like how are you ensuring that there is no execution issues that come from it. We've often come across situations where as you go through this IP implementation that issue. So just curious how you're managing through that. David Peacock This is Dave. The team 1 has been really well organized and has done a great job, especially with our ERP implementation, obviously, bring in a top-tier systems integrator -- so we're leveraging all the external resources as well as having, what I'd say, expertise within our business and experience having done this before, and frankly, more complex businesses. When you do something like this and you undergo this effort, in the manufacturing environment, which I've lived through in my past or a retail environment where you've got stop ledgers and vast lung data and all kinds of things. inventory across thousands and thousands of a lot of risk. In our business, while it's never simple, it's a little bit easier and a little less risk. Where you're seeing it manifest is on the cash flow side, which we know is short term because it has to do with billing cycles and how we're able to actually use a system that's actually going to help us compress our time to invoice and improve our DSOs over time. But you see that hiccup in the first quarter or 2 when you're then as it relates to visibility, I can tell you that the visibility we'll have within a granular level of our business is going to be much greater than where we've been with disparate systems. And we're already seeing the benefits of faster and richer data. So what used to take several hours for our team and FP&A to run a full run of our financials now can take minutes. And all these things will come with efficiencies over time. And then I'd also want to add that as we're implementing these new systems, and I'd say there's really kind of think about it in a few ways, there's foundational systems like our which was finished last year, our ERP and then our human capital management system, which will project kicks off in the second half of this year, it's a smaller effort but an important 1 for our then we've got our cloud migration and the data lake that we've constructed that will enable us to perform all kinds of AI use cases and then leverage the speed of data. These will come with efficiencies in the overall business, some of which Chris just mentioned that we're trying to pull forward as we look to realize cost benefits this year. And then as we implement new more modern systems over the next 2 to 3 years will actually be shutting down systems that will save us the expense that we've added to our P&L relative to newer systems. So you've got the benefit of ultimately having older systems being decommissioned, effectively paying the price for the new systems and then ultimately, the efficiencies within the business come to streamline operations and better data visibility. Operator William Reuter with Bank of America. Unidentified Participant Just a couple of follow-ups. The first, is there any way to figure out what the impact of staffing shortages would have been on EBITDA in the first quarter had you had sufficient labor? David Peacock Yes. I mean I think if you look at the first quarter and I look at our execution rates, for example, across our retailer and experiential segment, I would just say the vast majority -- actually probably more than the decline in EBITDA is associated with the staffing shortages. So when I think about other cost pressures or other items that are affecting those segments. I think the main driver of the weakness in decline in profitability was related to the staffing shortages. Unidentified Participant Got it. And then secondarily, -- is the destocking that you had previously -- or you saw, I think you mentioned a 1.5% increase headwind in the first quarter. Are you continuing to see destocking into the second quarter? Or is that largely complete? David Peacock I know that it certainly got better as the quarter went on, but I want to just say, I've not seen like April data yet, for example, to say that it stopped or is not occurring. I just want to also add that we saw this a year ago in the first quarter, and it went even lower this quarter -- this first quarter of '25. So I think what we're seeing is just a tighter lock on inventory by the retailers that is causing the year-over-year effect. My point then would be that it's unlikely we're going to see that continue at certainly the same rate in Q2, but I just have not seen the data yet to validate that. Christopher Growe Yes. The other thing to think about William is you've got an Easter shift, which was pretty substantial. -- and that can play a part in a retailer and how they stop especially fastening consumer goods that have a much more efficient supply chain and they tend to carry less inventory overall. So theoretically, you should see more of a pushing out of that volume by -- with consumer demand in April and then shipments starting to kind of catch up again. Unidentified Participant Got it. And then a last 1 for me. And this kind of a big picture question. Branded services, the breakdown of consumer products versus food companies, is there kind of a rough estimate you could give me on how that breaks down. David Peacock And you said food versus like beverage, household products is what you're getting at? Unidentified Participant Well, I was thinking more like food consumables that I think would have largely more consistent demand versus I'm sure there's consumer products in there as well that -- and when I say consumer products, I'm thinking about, I don't know, batteries or nonconsumables of that nature. David Peacock Yes. I mean the vast majority of our portfolio is going to be in the food and look all Personal Care. It's 70% food. And then we've got a very strong presence within the personal care and household goods segments as well. So we're not as exposed to things like electronics or kind of these other consumer -- obviously, not apparel and things like that. It's much more fast moving consumer goods. Operator There are no further questions at this time. I want to turn the call back over to Dave Peacock for closing remarks. David Peacock Yes. We thank everybody for joining the call, and we appreciate your attention and your questions, and we look forward to connecting with you for second quarter. Operator This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
The Guardian
19-04-2025
- Entertainment
- The Guardian
Gossip, gowns and Agas: could Ladies of the Cotswolds be reality TV's next big thing?
The Cotswolds had better steel itself: reality television is upon it. A series is planned (rumoured working title: Ladies of the Cotswolds) and it sounds posher than most. It's made by the company behind Grand Designs and set in the 'chocolate box' town of Charlbury, in the Evenlode valley. Names are being proposed for the series, such as Gabriela Peacock (nutritionist entrepreneur married to hedge fund banker David Peacock, and pals with Joan Collins and Princess Beatrice). Plum Sykes (author of last year's Cotswolds-set novel Wives Like Us) is thought to be scripting the voiceover. Then there's 'Suzie Jet' (Suzannah Harvey), CEO of the local airport. How marvellously down to earth and relatable they all sound. Though of course they don't, and that's the point. There's a semi-antecedent to Ladies of the Cotswolds – Ladies of London, which aired from 2014 to 2017 on Bravo. There's also the reality juggernaut Made in Chelsea, though that's pitched younger. The rural element of this latest toff-reality cultural fusion seems to link the success of the 2024 Disney+ adaptation of Jilly Cooper's Rivals with the ongoing Brit obsession with the generationally wealthy. Thus, the Cotswolds is ideal: running through counties including Oxfordshire, Gloucestershire, Warwickshire, Worcestershire and Wiltshire, it's Posh Central, anddubbed the 'Hamptons of the UK'. It is chocka with salubrious hangouts: Soho Farmhouse; Estelle Manor; The Bull, in Charlbury; The Pig in the Cotswolds. Celebrity locals include Kate Moss; the Beckhams; and Claudia Winkleman. The Chipping Norton set: Jeremy Clarkson, the Camerons, Blur's Alex James; Rebekah Brooks. Taylor Swift is thought to have stayed near Great Tew when she was performing on the UK leg of her Eras tour. Now, Beyoncé and Jay-Z are said to be contemplating buying a property in the Cotswolds area. In this way, the series ties in less with old money, rolling hills and stately piles and more with toff influencers pushing lifestyle aspiration on social media. Which makes the Cotswolds less a region, rather an uber-gentrified brand redolent of honey-hued cottages, ice baths and welly-boot scrapers. In what may be a deal breaker for many, it's apparently difficult to secure housekeepers and grooms. In more prosaic terms, there are problems with overtourism and locals being priced out of the area. Still, one can only read, enviously rapt, about the freshwater swimming pools, organic farm shops, multiple kitchens and stables with Range Rovers. The very best that rural England (stealth wealth division) has to offer. All of which makes it strange to hear that Ladies is inspired by The Real Housewives of Beverly Hills and the extended Real Housewives global franchise. In the UK, there's The Real Housewives of Cheshire, while The Real Housewives of London is mooted. Real Housewives content tends to have three main components: grooming, gossip and drama. Cast members are required to, shall we say, speak their truth. Add hair extensions, shellac nails and almost daily gown-fittings and it's part glittering social whirl, part bloodbath. How would this brand of 'reality' land in the Cotswolds, where the properly wealthy don't require the cash, and the famously private don't need the exposure? An area where high-flying financiers don't want their lives turned into reputational rubble, and landowners wouldn't know a Molly-Mae Hague from an irrigation trench in the fallow field. Even now, there are reports of Cotswold establishments being disinclined to give Ladies permission to film on their premises. In terms of Cotswolds sensibilities and etiquette, would appearing on reality TV be considered a faux pas? Rupert Wesson is director of Debrett's, the authority on traditions, society and culture. 'People who are very wealthy don't feel the need to expose themselves,' he says, but 'nowadays the barriers for what is filmed for media channels and what is filmed for TV are blurring'. Wesson lives in the Cotswolds and points out it already has a prominent reality TV show, Prime Video's Clarkson's Farm. Also, that aristocrats have sometimes allowed cameras to film their estates and themselves, often to help finance the astronomical upkeep. Wouldn't wealthy Cotswolds types consider appearing on reality TV naff? 'They'd just see it as unnecessary,' Wesson says, adding that Debrett's wouldn't take a view. 'We tend not to opine on this sort of thing.' Would such an area produce reality-style material? 'There are plenty of people who want to be on TV and are prepared to sign up to what I think the professionals call heightened reality. Most people will know it isn't real life – it's just a curated version. Still they buy into it. I'm sure it will look beautiful. I'm sure the people on it will look beautiful. That in itself is enough to draw people in.' Playing into all this is the ever-shifting nature of reality TV itself, and the ongoing censure of it. Its content (augmented; premeditated; soft-scripted) has long been disparaged as the enemy of creativity. In 2014, Gary Oldman called it 'the museum of social decay', adding of the Kardashians: 'My dog has more dignity than those fuckers.' It perhaps says something that, bar Made in Chelsea and the odd aristo-participant (Lady Colin Campbell; Lord Brocket) in I'm a Celebrity … , drama rather than reality is where our longstanding fascination (and scorn, and sometimes affection) for the rich and privileged has played out: historically (Brideshead Revisited) and more recently in Succession; The White Lotus; and Rivals. Are wealthy people less likely to play the reality TV game because, frankly, they don't need to? Is this going to be a problem for Ladies of the Cotswolds? As Netflix's With Love, Meghan lifestyle-love-in demonstrated, there can be only so much enthralment watching wealthy sorts collecting honey from photogenic hives, or sprinkling flowers on food. In cynical Britain, there's only so much aspirational swanking audiences can take, before they cry: 'Where's the dirt?' And they don't mean scraping good honest Cotswold mud off Le Chameau wellies. At the same time, an era where lifestyle is king, does it matter so long as we all get to peek inside their Aga Rangemasters?
Yahoo
08-03-2025
- Business
- Yahoo
Q4 2024 Advantage Solutions Inc Earnings Call
Ruben Mella; Vice President, Investor Relations; Advantage Solutions Inc David Peacock; Chief Executive Officer, Director; Advantage Solutions Inc Christopher Growe; Chief Financial Officer; Advantage Solutions Inc Joseph Vafi; Analyst; Canaccord Genuity Greg Parrish; Analyst; Morgan Stanley Operator Greetings, and welcome to the Advantage Solutions fourth quarter and full year 2024 earnings call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce Ruben Mella, Vice President of Investor Relations. Thank you, Ruben. You may begin. Ruben Mella Thank you, operator. Welcome to Advantage Solutions fourth quarter and full year 2024 earnings conference call. Dave Peacock, Chief Executive Officer; Chris Growe, Chief Financial Officer; and Sean Choksi, Senior Vice President of Strategy and M&A, are on the call today. Dave and Chris will provide their prepared remarks, after which, we will open the call for a question-and-answer session. During this call, management may make forward-looking statements within the meaning of the Federal securities laws. 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 qualified in their entirety by such factors. Our remarks today include certain non-GAAP financial measures, which are reconciled to the most comparable GAAP measures in our earnings release. As a reminder, unless otherwise stated, the financial results discussed today will be from continuing operations. Our discussion about revenues will exclude pass-through costs and the deconsolidation of the European joint venture, which happened during the fourth quarter of 2023. And now, I would like to turn the call over to Dave Peacock. David Peacock Thanks, Ruben. Good morning, everyone, and thank you for joining us. Before we get started, I want to thank my teammates for their hard work and dedication this past year. I am proud of how our teams served our thousands of clients and each other in a challenging year. In 2024, we made solid progress on our multiyear transformation, making strides to improve our operating efficiency while strengthening our business. These efforts have endured during a difficult macro environment, and we continue to position ourselves for long-term profitable growth. I'm encouraged by our progress as well as the caliber and resilience of our team. Focusing on results first. Our fourth-quarter revenues of $762 million were down 3% compared to the prior year, while adjusted EBITDA was up 9% to $95 million as we realize the benefits of more cost discipline and efficiency across our business. For the full year 2024, our revenues of $3 billion were flat versus the prior year, and our adjusted EBITDA reached $356 million, which was up 1% and in line with our expectations given broader market trend transformation investments. It is also important to note that we had a nearly 2% drag on revenues in the fourth quarter and full year related to intentional client exits. Starting with some observations on the macro environment in 2024. We saw a significant increase in value-seeking shopping behavior. Club stores and mass merchandisers benefited from cost-conscious consumers at the expense of regional grocery and other channels, where we and others in our industry have significant exposure. While a tighter labor market and wage growth supported overall consumer resiliency, spending behavior became increasingly challenging, particularly at low-income levels. Furthermore, consumer debt levels continue to rise, which could pressure spending habits further in 2025. CPG companies and retailers have been addressing muted growth from these headwinds with innovation, price promotions, and disciplined vendor cost management, which has impacted our performance. We have a track record of navigating these cyclical moments and shifts in consumer behavior while retaining over 95% of our key clients. We have historically been able to meet a broad set of client needs and provide them with certainty of cost and timely execution, both critical in this environment. This is a result of our diverse service offerings, technology and data infrastructure, and talented workforce. The last two years have been a journey. In 2023, we built a leadership team to find priority work streams for the transformation and began to execute on those work streams, all while stemming declines in the business as evidenced by largely flat adjusted EBITDA performance in 2023 after a roughly 20% decline in the prior year. 2024 was a year of simplification in the beginning of our transformation in earnest. We completed several divestitures to focus on our core capabilities. We resegmented our business for better alignment with our customer base and improve transparency. And we establish centralized shared services to better support our three business units in a more consistent and efficient way. We also laid the groundwork for significant IT and data advancements in 2025. Despite all of this change, we grew adjusted EBITDA. In Branded Services, while our results were impacted by the challenging consumer backdrop, we made significant progress on key initiatives. During the year, we rightsized our business while deploying new processes and data and upskilling our sales teams to ensure that we have the best approach to serve our clients. We standardized operations, streamlined areas for better, faster workflows, and saw a positive response with the retailers we served on behalf of our CPG clients. In Experiential Services, we delivered strong results in 2024, driven by an increase in events per day and improvements in execution rate, labor utilization, and safety. The experiential segment was able to mitigate wage inflation with price discipline and labor optimization efforts while managing through a persistently tight labor market. In Retailer Services, we had a solid 2024, meeting our objectives to improve execution and cost discipline while effectively managing higher part-time wages to attract and retain talent. Looking ahead, 2025 is the year we implement systems, infrastructure, and processes to enhance decision-making and client service delivery. These changes are focused on optimizing technology and labor utilization. Our multipronged approach to technology and data architecture investment will yield significant operational benefits for our business over time. We've initiated the go-live of our ERP system among many anticipated benefits. We expect to see improvement in our DSO management over time by leveraging the system's AR tools to shorten invoice timing. We will continue to execute the ERP migration in phases throughout 2025 and into 2026. We look forward to updating you on our progress. And so far, our implementation is going well. We have upgraded our enterprise performance management system, significantly reducing cycle times for financial planning, forecasting, and reporting. This upgrade streamlines key processes, such as our financial close, reporting, and scenario modeling while improving driver and trend-based analysis, enhancing decision-making and agility. We continue to make progress on modernizing and migrating critical services and capabilities to the cloud. Our investment in more efficient data efficient data storage in the cloud is enabling us to build a data lake to support our business with key tools, including cloud-based CRM that will allow sales, marketing, and customer service teams to access data from anywhere at any time while eliminating the need for on-premise servers and disparate data silos. AI capabilities will help us query information more quickly in response to client needs. Machine learning programs that will generate informed insights, such as predictive analytics, lead scoring, and customer sentiment analysis and AI-driven self-audits, route optimization, and merchandising recommendations. We are also in the early stages of a human capital management system implementation with Workday, which will help drive efficiency in our HR processes and improve our teammate experience. This is just a glimpse of what we are doing, and we are excited by the prospect of integrating these tools into our workflow throughout 2025 and beyond. Another focus of our transformation in 2025 is improving our labor utilization. We are pleased to have George Johnson join us in a newly created role as Chief of Workforce Operations. George has a proven track record of optimizing labor while enhancing employee experience at companies, such as Cisco and Aramark. George is joining us at the right time to lead our efforts as we execute several key initiatives, including a program to leverage AI-assisted staffing with associates and Experiential Services, which is showing great potential. Separately, we completed a proof of concept of our geographic-based talent sharing system across several client banners within a defined geographic radius. For reference, employees, historically, have been mapped to a single retail location. Based on a positive uplift in execution rate, greater internal staff utilization, and a reduction in third-party labor, we are expanding this pilot to several hundred stores in 2025. If successful, we will leverage this capability across key parts of the company, with the goal of significantly increasing the hours per week for our part-time frontline teammates by up to 50% and continuing to lower the use of costly third-party labor. This would result in retention improvements, yielding better train teammates, lower talent acquisition costs, and more available hours for teammates seeking additional work across the company. We're still in early days, but officially utilizing labor to best serve our customers and enrich our employee experience is a key focus area for us, particularly in the currently challenged macroeconomic environment. As I think about our segments this year, Branded Services is adapting their go-to-market strategy and finding ways to integrate our expertise across CPG representation at retailer headquarters and merchandising. As part of that process, we launched our next-generation selling model, which enabled us to right-size the group and upskill the appropriate individuals to best serve clients and help them navigate the headwinds they are facing. The results are more rapid decision-making with single client and customer-facing key account managers. We are increasing our differentiation by equipping our frontline teammates with market-leading technologies to offer clients enhanced real-time analytics to solve problems faster. Our latest Power BI dashboards provide interactive live data by retailer aisle and geography to clients in order for them to optimize distribution, price, promotion impact, and shopper benefit. We are pleased to announce that Dean General will be joining us from Henkel Consumer Brands to run Branded Services effective March 24. Dean brings with him a wealth of experience and connectivity from different CPGs and across the US retail landscape, and we are excited to have him on the team. He has led large teams, successful selling organizations, and significant businesses across categories and the go-to-market spectrum with full P&L management. Jack Pestello has elected to depart Advantage in order to pursue a return to the retail industry and a leadership position. Jack has been a trusted partner in the process of stabilizing and transforming the Branded Services segment amidst the competitive backdrop, and we are grateful for his insights and dedication. He will be remaining with Advantage through April to ensure a smooth transition, and we are confident we will be working with Jack again. In Experiential Services, we have strengthened the business over the past four years, successfully executing on the recovery coming out of the pandemic and positioning the business for sustainable growth. Going forward, we will continue to focus on operational excellence with our existing clients for traditional sampling and securing new banners. We are also looking to expand our premium brand activation services in venues other than club stores and large-format retailers, currently our biggest market. And with the increasing ease of ordering online, we see the opportunity to expand our presence in digital sampling, which will help clients reach consumers where they shop. Turning to Retailer Services. Our priorities start with continuing to deliver effective in-store merchandising for retailers across product types. On the private brand side, while big box retailers drove growth with cost-conscious consumers in 2024, we expect regional grocers to increase their participation in 2025. This will enable our [game] in business to help clients execute in-store and online private brand strategies in ways that offer a point of difference for consumers. We sit between approximately 6,000 North American contract manufacturers and dozens of retailers. We will also remain focused on enhancing the personalized shopping experience through retail media services. We expect a growing shift from traditional advertising to data-driven campaigns that blend physical and digital channels, which will be a tailwind for us as we enhance our in-store campaign support with partnerships for digital offers with companies like Inmar and Swiftly. In addition, we are focused on expanding our services across market channels and adjacencies to pursue future growth. Many retailers are struggling to find labor in our in-store solutions for more episodic tasks help retailers save money and ensure a positive shopper experience in a difficult market. While we will remain focused on implementing the initiatives I just mentioned, we are targeting low single-digit revenue and adjusted EBITDA growth in 2025, with adjusted EBITDA more in line with the growth rate of 2024. Revenue growth continues to be largely influenced by the subdued CPG environment, while our OpEx will be affected by ongoing transformation-related investments. Despite this, our increased focus on labor efficiency and use of technology to enhance service delivery will help us offset the temporal increases in costs related to our transformation. Pivoting to cash flow. There are several onetime items that will impact our performance this year, which Chris will discuss. Excluding these items, we'd see unlevered free cash flow closer to 90% and net free cash flow around 25%. Given the nuances to 2025, we expect to be around these normalized levels of cash generation next year. Overall, I am pleased with the progress we are making to strengthen our organization, pursuing initiatives that will position us for accelerated growth in the years to come. We believe this positions us well to begin achieving more sustainable, higher growth over the medium and long term. While there is a lot of uncertainty in the macroeconomic backdrop, we are continuing to efficiently execute against our strategy, improving the foundation of our business for our customers and our shareholders. We will emerge from our transformation in the current market cycle as a more disciplined, agile business. I'll now pass it over to Chris for more details on our performance and guidance. Christopher Growe Thank you, Dave, and welcome to all of you joining the call today. I will focus my remarks on our full year 2024 performance in Branded, Experiential, and Retailer Services, cover our capital structure, and discuss our 2025 guidance. Let's start with Branded Services. Market headwinds most impacted Branded Services. As a result, 2024 revenues were down by approximately 4% to $1.1 billion. Adjusted EBITDA was $181 million, down 11%, and margins declined by 90 basis points. The reorganization and restructuring actions taken to adapt to soft market conditions resulted in significant expense reduction recognized in the fourth quarter and were the driver for the strong quarterly performance as referenced in our supplementary slides. We continue to be cautious about and reactive to market dynamics in the near term. Experiential Services delivered strong results with full-year revenues of $945 million, an increase of approximately 11%. Adjusted EBITDA was $76 million, a 43% increase, and margins expanded 180 basis points to 8%. The drivers included a nearly 10% increase in events per day and an execution rate of approximately 92%. The base business and traditional sampling performed well and benefited from the ramp-up of activity with a large retailer we announced early last year, but at a slower than expected rate. As Dave mentioned, our pricing discipline helped us navigate wage inflation and increase operating efficiencies through better talent deployment. In the fourth quarter, the softer performance was due to a client loss and onetime expenses. Retailer Services navigated through the market headwinds with strong execution. Full-year revenues were $965 million, a 2% decline, while adjusted EBITDA was $99 million, up approximately 3%. And margins expanded by 50 basis points to over 10%. The revenue decline was driven by market softness in the regional grocery channel and the intentional decision to exit a customer relationship early in the year. Our teammates improved talent deployment and effectively managed costs, which helped increase adjusted EBITDA dollars and margin. Performance in the fourth quarter was soft, also due in part to a timing shift of activity into the third quarter. Overall, it is also worth noting that foreign exchange impacts were an approximately 2% drag on adjusted EBITDA performance in the quarter. Moving to our balance sheet. In 2024, we continued our capital discipline and made progress reducing our debt levels. We used a portion of the proceeds from the divestitures and internal cash generation to voluntarily repurchase approximately $158 million of debt and approximately 9 million shares. We did not repurchase debt or shares in the fourth quarter. Interest expense for the year was $147 million, in line with guidance. Our net leverage ratio was approximately 4.0 times adjusted EBITDA, including continuing and discontinued operations. Turning to cash generation. Our teammates exceeded expectations and reduced DSOs to about 61 days, down from nearly 65 days in the prior year, which led to net working capital generating over $20 million of cash in 2024. As we discussed last quarter, the timing of cash payments pushed capital expenditures into 2025. As a result, CapEx in 2024 was $55 million. We generated adjusted unlevered free cash flow of $335 million, nearly 90% of adjusted EBITDA, well ahead of the 55% to 65% guidance. Based on the proceeds from divestitures and strong working capital management, we ended 2024 with $205 million of cash on hand. Moving to our 2025 outlook. We expect adjusted EBITDA growth to be similar to the rate of growth in 2024, with the pace of revenue growth slightly higher. We expect the quarterly cadence of adjusted EBITDA to be similar to 2024 in terms of the split between first half contribution and second half contribution. This seasonality could be further exacerbated by poor weather and retailer inventory patterns consistent with comments you may have heard from many consumer companies. While we continue to focus on cost discipline in executing our transformation initiatives, operating expenses are expected to increase as we implement these initiatives, including licensing fees associated with the new IT systems and staffing needs in certain areas. That being said, related below-the-line costs are expected to decline meaningfully in 2025. Turning to cash flow in 2025. We expect adjusted unlevered free cash flow to be over 50% of adjusted EBITDA, primarily driven by certain onetime items. First, there is a one extra payroll shift that will result in approximately $50 million drag on working capital. This will not repeat in 2026. Additionally, given the timing of our anticipated and known new business wins, a significant amount of those collections won't take place until 2026. We also expect slightly unfavorable short-term impacts on DSOs with the implementation of SAP, which should improve in 2026. On a net cash flow basis, these impacts will be partially offset by a significant year-over-year reduction in restructuring costs. Assuming we do not repurchase any debt in 2025, interest expense should be $140 million to $150 million. This is due to the interest rate hedge that was unwound, only being partially offset by a lower debt level and interest rates. Because of the timing of cash payments from 2024, we expect CapEx in 2025 to be $65 million to $75 million. We still expect the three-year IT CapEx initiatives to be $140 million to $150 million across 2024 to 2026. We plan to use balance sheet cash to reinvest in the business and opportunistically reduce debt, subject to market conditions. We expect the net leverage ratio to be a bit higher in 2025 before tracking the 2026 towards our long-term target of less than 3.5 times. Thank you for your time. I will now turn it back over to Dave. David Peacock Thanks, Chris. I'm pleased with the progress we made in 2024 on our multiyear transformation. We continue to improve our operating efficiency while strengthening our business fundamentals. In 2025, we remain focused on these initiatives and are confident they are enabling our position as the cost-leading provider of choice for customers. While the climate for CPGs and retailers remains uncertain, we are excited by the prospect of helping them achieve their goals with tailored labor solutions in a challenging time. We will continue to maintain our financial rigor and cost discipline with a focus on improving our cash generation in years to come, and we are confident in our path to achieve accelerated sustainable long-term growth. Operator, we are now ready for questions. Operator (Operator Instructions) Joseph Vafi, Canaccord. Joseph Vafi I have a couple of questions here. Maybe we just start a little bit on maybe the macro environment tariffs, et cetera, kind of what you're seeing here real time. I know we got some commentary on the macro already but maybe a little bit more on it. David Peacock Thanks, Joe, and thanks for joining early out west (inaudible). I think, if anything, it's generating uncertainty in the market, which is a word you're probably seeing a lot. Obviously, we saw yesterday that there may be some scaling back of some of the items that we are going to see tariffs at least until April. And so the kind of on again, off again nature of the tariffs is really, for some companies and some categories that we work with, sort of frozen people a little bit as far as the next steps and what they want to do relative to their business. I think most are in a wait-and-see mode given that. And I do think there's really certain categories that are significantly affected. But because of brand interactions, product interactions, category interactions, you will see an impact across the store. We've seen estimates between $1,200 and $2,000 per year in incremental cost to the average US household. And obviously, some of that falls into the categories that we represent. For us, we are paid in parts of our business based on commissions. So if pricing flows through, you can see increased commissions coming our way, but you obviously have elasticities and volume declines. You could see supply chains disrupted a bit, which our retail merchandising teams would probably see greater kind of need for their services. When you have disruptive supply chains, making sure this product on shelf is pretty important. And so those are just a few examples of what you could see if these tariffs are both imposed and imposed over for a long period of time. But at this point, I think it's anyone's guess as to obviously is going to play out. Joseph Vafi Sure. And then maybe just another kind of high-level one and kind of -- is this a kind of environment that you think that new logo wins are achievable? Or is that really more in a growth environment, where maybe there's more appetite and more demand for services? David Peacock Thanks, Joe. Yes, I think it's really both, right? We've got an aggressive business development effort and some new leadership and structure and process in that group over the -- that was put in place over the last year and really, really excited about the pipeline that we have as it relates to new logos. And then on the -- on just the services side, there is an opportunity. And I'd say, if you look across our segments within the Retailer Services space, we're doing a lot to bump out incremental services that we can provide retailers in a constrained labor market, the job support just came out and showed still pretty healthy hiring. I think that we're all kind of waiting for the significant softening in the labor market, which is likely to come. And it was a little softer than people expected. But I think there are services that we can provide at really a lower cost because of the scale manner and efficiency in which we do them, they can really benefit retailers. So we're exploring a lot of opportunities in that space. And then if you look at our Experiential Services space, it's similar. There's other forms beyond in-store sampling of product demonstration and product sampling that we are moving into and seeing pretty healthy demand for. And then on the Branded Services space, I mentioned that the retail merchandising side of the business, on behalf of CPGs, is an area where there's real opportunity, especially when you've got any disruptions to supply chains and/or significant growth, especially from kind of midsize or emerging brands. Operator Greg Parrish, Morgan Stanley. Greg Parrish Congrats on the full-year results. Maybe just start on Branded. Just want to unpack a little bit. There's some of the headwinds going on. Growth is slow a little bit in the quarter. You expect those to persist in first quarter. So what's the right way to think about 2025, given the headwinds in the market right now? I mean, it's down low single-digit revenue growth, the right kind of framework or similar to 2024. Just help us sort of flesh out what to expect in 2025. David Peacock Thanks, Greg. And you're talking for the Branded Services segment specifically? Greg Parrish Yes. Yes, exactly. David Peacock Yes, yes. I think some of your assessment is correct. We obviously don't guide by segment, but you know and everybody is watching and, for instance, paid attention to what happened at CAGNY most recently but also other reports from consumer product companies. I'd say, it's kind of a sanguine environment relative to outlook. And a little bit of the uncertainty we just talked about as it relates to tariffs because depending on the category you're competing in, you could be realizing some significant input costs. You obviously have the -- really what I call the uncertainty that comes with GLP-1 drugs and GLP-1 drug adoption. We know that that can impact household spending on group food as much as 6% and higher income households even more. The question is, what's the adoption curve and how long are people going to stay on those drugs and how long does that pattern persist? We know it's past single-digit percentage of the population right now. But recently, it came out that those drugs are going to become a little less expensive, too. So we have to watch that closely. So all of these things suggest a lot of uncertainty for the consumer space. That said, I think some of this will depend on our ability to generate new business through logos growth and incremental services provided, and we do have clients who are leaning into some of the things that we provide. I mentioned the retail merchandising side, some of the things we do for them on the e-commerce side is that continues to be a growth area for retail. So we're optimistic. We're kind of placing our energy and bets against the areas where we think we can provide cost efficiency for them and improvement in operations based on the current uncertain environment. Greg Parrish Yes. That's all helpful color. And then maybe rolling that into the 2025 guide, I guess, how do we think about it in like how conservative this is or vice versa, right? You have these headwinds are persisting in 1Q. So does your guidance contemplate the market getting better after first quarter here? Or would you be able to hit your EBITDA guide even if these headwinds that we're currently seeing sort of persist through the year? David Peacock Yes. When we performed the guidance, we obviously did so kind of eyes wide open to the existing environment. I would say, tariffs and how those play out are probably the things that are the most difficult to predict. But I mentioned there's some things that we can capitalize on in an environment where you've got tariffs or even uncertainty around tariffs. But that's probably the thing that is the most difficult to determine or estimate relative looking forward. I'd say, one way to look at it in simple terms is we're making great progress on transformation. We started two years ago. We focused first on team building for leadership, diagnosing the opportunities that we had in the business and where we had a right to win. We quickly then try to simplify the resegment. Obviously, with divestitures, we've talked to you guys about over the last couple of years, get the portfolio right, the structure right, and some of the processes right. And this year is a big year of system implementation. It started as late as last year, but a lot of the kind of investment around system implementation is hitting in 2025. But for some of the increase in both technology spend to get more modern systems, more reliable systems, more stable systems and data investment because we have invested in getting better, more granular data faster into the hands of our key account managers. If you exclude those, we would be kind of more in the mid-single-digit growth rate. So we actually feel like the fundamentals of the business are pretty strong. And as Chris alluded to in his comments, from a cash flow standpoint, we have some unique onetime items that if they didn't exist, we'd be seeing unlevered free cash flow and net free cash flow kind of more in line with what we would expect in this business. So we have an investment year. We're coming upon, I'd say, the end of what I'll call the heavy investment and effort around transformation. And yes, we are gaining a positive outlook. And to the degree the markets can stabilize and get back to more of a historical growth rate, we think we're ready to meet that growth and is a much kind of more lean and cost-efficient company. Greg Parrish Great. That's super helpful color. And maybe one more final one for me. On a client exits, do you anticipate any further client exits that -- intentionally on your part in 2025? Is there any of those in the road map? David Peacock No, I don't think so. Not that I can think of, no. We had a couple of unique circumstances. We've worked through those. We're still kind of feeling those effects a little bit into the first quarter of '25 as just from a lapping standpoint, but no, we don't anticipate any intentional client exits as we move into 2025. Operator Thank you. And there are no further questions at this time. I would like to turn the call back over to Dave Peacock for closing remarks. Please go ahead. David Peacock Well, we thank you all for joining. We know it's early on a Friday, so we appreciate the time and attention on our business. And we look forward to talking to you in the first quarter. Thank you. Operator This concludes today's teleconference. You may disconnect your lines at any time. Thank you for your participation.
