Executive Summary / Key Takeaways

• Advantage Solutions is undergoing a multi-year transformation to simplify its business, enhance capabilities through technology and labor optimization, and position itself as a cost-leading, insights-driven partner for consumer goods companies and retailers.
• First quarter 2025 results reflected significant pressure from a challenging macroeconomic environment (waning consumer confidence, inventory destocking, tariff uncertainty) and temporary impacts from transformation investments and intentional client exits, resulting in revenue and Adjusted EBITDA declines.
• The company is making substantial investments in technology, including ERP system rollout, data lake development, and AI capabilities, aiming for quantifiable benefits like improved efficiency, faster insights (visualizing in seconds vs. days/weeks), and better labor utilization (targeting 30%+ uplift in part-time hours).
• Despite near-term headwinds and transformation costs, management maintains confidence in the long-term earnings power and cash generation potential, expecting a more significant weighting of performance towards the second half of 2025 as initiatives yield benefits and macro conditions potentially stabilize.
• The updated 2025 guidance for flat to down low single-digit revenue and Adjusted EBITDA growth reflects heightened market uncertainty, while cash flow guidance remains over 50% of Adjusted EBITDA, impacted by specific one-time transformation-related items.

Setting the Scene: Advantage's Transformation in a Dynamic Market

Advantage Solutions Inc. ($ADV) operates at the critical intersection of consumer goods manufacturers and retailers, providing outsourced sales and marketing solutions designed to drive demand and convert shoppers into buyers. Founded in 1987, the company has built a scaled platform offering essential services ranging from headquarter sales and retail merchandising to in-store sampling and digital commerce. A significant point in its history, the 2014 acquisition by Karman Topco L.P., shaped its balance sheet with substantial intangible assets, a factor influencing reported depreciation and amortization. More recently, the company has embarked on a multi-year transformation journey, initiated in 2023, focused on simplifying its portfolio, reorganizing its structure into three core segments (Branded Services, Experiential Services, and Retailer Services), and investing heavily in technology and operational efficiency.

This strategic pivot comes amidst a challenging and uncertain macroeconomic backdrop. Waning consumer confidence, increased uncertainty from tariff concerns, lower consumer purchases, and retailer inventory adjustments have created a softer environment. These trends manifest as lower year-over-year order volumes for CPGs and a shift in consumer behavior towards value, benefiting channels like club stores and mass merchandisers. The labor market also remains challenging, contributing to staffing difficulties. Advantage's transformation is designed to navigate these dynamics, positioning the company as a more agile and cost-effective partner capable of providing certainty and driving efficiency for clients facing these pressures.

The Competitive Arena: Positioning Through Technology and Integrated Services

The outsourced sales and marketing industry is competitive, featuring players ranging from broad marketing conglomerates to specialized data and field service providers. Key publicly traded competitors include Nielsen Holdings (NLSN), Omnicom Group (OMC), Publicis Groupe (PUBGY), and WPP plc (WPP). While these firms often compete in overlapping areas like brand-centric marketing, digital services, and analytics, Advantage seeks to differentiate itself through its integrated, end-to-end service offering across the physical and digital path to purchase and, increasingly, through its technological capabilities.

Compared to data specialists like Nielsen, Advantage's strength lies not just in data collection but in its ability to translate insights directly into action across sales, merchandising, and experiential channels. While Nielsen may possess deeper proprietary data networks in certain areas, Advantage's investment in its data lake and analytics aims to provide faster, more actionable insights for its specific client base. Against marketing giants like Omnicom, Publicis, and WPP, which often boast larger global scale, higher revenue growth rates (e.g., Omnicom's 8-10% vs. ADV's recent 2-4%), and significantly stronger profitability margins (e.g., Omnicom's 10-15% net margin vs. ADV's recent -10.71% TTM net margin), Advantage positions itself as a more specialized, cost-effective partner focused specifically on driving sales conversion at the point of purchase and across omnichannel touchpoints. Its integrated model, spanning brand representation, in-store execution, and consumer engagement, offers a unique value proposition that broader agencies may not replicate as seamlessly. However, Advantage's higher debt levels (TTM Debt/Equity of 2.41) and lower profitability metrics compared to these larger, more financially robust competitors pose challenges in terms of investment capacity and pricing power in certain competitive scenarios.

Advantage's strategic focus on technology and operational efficiency is a direct response to these competitive pressures, aiming to improve its cost structure and enhance its value proposition to gain market share in targeted areas.

Technological Differentiation: Fueling Efficiency and Insight

A cornerstone of Advantage's transformation is a significant investment in modernizing its technology infrastructure and enhancing its data and analytics capabilities. This is not merely an IT upgrade; it's a strategic effort to build a competitive moat and drive quantifiable improvements across the business.

The company is implementing a new global Enterprise Resource Planning (ERP) system, with the North America operations going live in Q1 2025 and Phase 2 for international operations completed in April 2025. This foundational system is expected to yield operational savings and improve working capital management, specifically targeting better Days Sales Outstanding (DSO) performance over time by shortening invoice timing. Complementing the ERP is the development of a foundational data platform and a data lake, on pace for completion in the second half of 2025, with broader cloud migration by Q1 2026. This data lake is designed to ingest significant syndicated and internal data, enabling more rapid deployment of AI use cases.

Advantage is actively leveraging AI through its own core competency center and partnerships. Stated goals include using AI for applications that serve customers, such as contract management and routing merchandisers, and internal needs like HR workflow and analysis of large data sets. A partnership with a retail technology company specializing in image recognition aims to provide real-time inventory tracking at retail, co-developing solutions for faster, smarter decisions on the shelf. The company expects to overlay 600 million points of proprietary data to share detailed analytical dashboards with real-time insights, enabling visualization in seconds what previously took days or weeks, pinpointing root causes, and capitalizing on higher-return opportunities.

Beyond data and AI, Advantage is focused on labor utilization technology. Initiatives include piloting AI-assisted staffing and expanding a geographic-based talent sharing system pilot to several hundred stores in 2025. Based on initial positive results showing uplift in execution rate, greater internal staff utilization, and reduced third-party labor, the goal is to significantly increase hours per week for part-time teammates by up to 50%. These technological advancements are intended to drive operational efficiencies, enhance service delivery, and provide a differentiated, insights-driven offering to clients, contributing to Advantage's competitive positioning and long-term financial performance.

Performance Under Pressure: Q1 2025 and the Path Forward

The first quarter of 2025 provided a clear illustration of the pressures facing Advantage and its clients. Revenues from continuing operations decreased by 4.6% year-over-year to $821.8 million, and Adjusted EBITDA from continuing operations fell by 17.6% to $58.2 million. These declines were attributed primarily to the weaker economic environment impacting consumer goods clients, lower order volumes, and an intentional client resignation from fiscal year 2024. Segment performance varied: Branded Services saw revenues decline 11.9% and Adjusted EBITDA drop 18.6%, impacted by market headwinds and reorganization costs. Experiential Services revenues grew 2.2%, driven by increased event volume, but Adjusted EBITDA decreased 27.7% due to increased labor costs and temporary staffing challenges. Retailer Services revenues decreased 3.1%, and Adjusted EBITDA fell 7.4%, also affected by staffing shortages, although operating results improved due to lower reorganization costs.

Despite the top-line and profitability pressures, the company continued to execute on its transformation and manage its capital structure. Net cash used in operating activities from continuing operations increased, primarily due to a rise in accounts receivable linked to the ERP system implementation, which temporarily impacted DSO (up to 70 days in Q1 2025 from 61 days at year-end 2024). Investing activities included $15.1 million in CapEx, largely for the ERP initiative. Financing activities saw $18.2 million in voluntary debt repurchases and $0.9 million in share repurchases, reflecting management's view of attractive debt and equity trading levels. Advantage ended the quarter with $121 million in cash and $451 million in unused Revolving Credit Facility capacity, providing liquidity.

Outlook and Guidance: A Back-Half Weighted Recovery

Given the softer start to the year and heightened market uncertainty, particularly regarding potential tariff impacts, Advantage lowered its full-year 2025 guidance. The company now expects revenue and Adjusted EBITDA to be flat to down low single digits year-over-year. Management believes tariffs and corresponding reactions from CPGs and consumers could have a modestly adverse net impact, with potential benefits in areas like private label and supply chain services possibly offset by demand softness in brokerage, retail, and sampling.

The outlook remains back-half weighted, similar to 2024, driven by expected improvements in staffing and execution rates from Q2 onwards, decreasing transformation-related expenses in the latter half, known business wins contributing more significantly, and ongoing cost reduction programs. Adjusted unlevered cash flow guidance is reiterated at greater than 50% of Adjusted EBITDA, though 2025 cash flow will be impacted by specific one-time items: an extra payroll shift (~$50 million drag), timing of new business collections, and temporary DSO impacts from the ERP rollout. Interest expense is guided at $140 million to $150 million, and CapEx at $65 million to $75 million, reflecting continued investment in the IT transformation before tapering in 2026. The net leverage ratio is expected to be slightly higher in 2025 before tracking towards the long-term target of less than 3.5x in 2026.

Risks and Challenges

Several risks could impact Advantage's ability to achieve its objectives. The uncertain macroeconomic environment, including potential tariff escalations and shifts in consumer spending, could further pressure client budgets and demand for services. The tight labor market and the success of labor optimization initiatives are critical to improving execution rates and managing costs, particularly in the Experiential and Retailer segments. The effective implementation of the complex ERP system and other technology initiatives is crucial for realizing expected efficiencies and avoiding operational disruptions. While progress has been made, the "Take 5 Matter" litigation represents a potential contingent liability. Finally, the company's debt levels, while being addressed through repurchases, remain a factor influencing financial flexibility.

Conclusion

Advantage Solutions is in a period of significant transformation, strategically repositioning itself to thrive in a dynamic consumer goods and retail landscape. The first quarter of 2025 highlighted the near-term challenges posed by macro headwinds and the costs associated with this transition, resulting in a downward revision to full-year guidance. However, the core investment thesis hinges on the successful execution of the company's simplification and investment strategy.

Key to this thesis is the realization of benefits from substantial technology investments aimed at driving efficiency, enhancing insights, and optimizing labor utilization – areas where Advantage seeks to build a competitive edge against rivals. While profitability and growth currently lag larger competitors, the strategic focus on integrated, technology-enabled solutions at the intersection of brands and retailers offers a differentiated value proposition. Investors should closely monitor the company's progress in implementing its transformation initiatives, the trajectory of the macroeconomic environment, and the impact of these factors on financial performance and debt reduction efforts as Advantage works towards its goal of sustainable, accelerated growth and improved cash generation beyond 2025.