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
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.