Advantage Solutions Inc (ADV) 2020 Q3 法說會逐字稿

Thank you for joining us on Advantage Solutions' Fiscal Year 2020 Third Quarter Earnings Conference Call. On the call today are Tanya Domier, Chief Executive Officer; Brian Stevens, Chief Financial Officer and Chief Operating Officer; and Jill Griffin, President and Chief Commercial Officer.

During this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events and those described in the forward-looking statements.

Forward-looking statements are based on the company's current expectations and are subject to inherent uncertainties, risks and assumptions that are difficult to predict. Actual outcomes and results could differ materially due to a number of factors, including those described more fully in the sections titled, risk factors and management's discussion and analysis of financial condition and results of operation and elsewhere in the company's filings with the Securities and Exchange Commission.

All forward-looking statements are expressly qualified in their entirety by such factors. The company does not undertake any duty to update any forward-looking statement, except as required by law.

Please note management's remarks today will highlight certain non-GAAP financial measures. Our earnings release issued earlier today presents reconciliations of these non-GAAP financial measures to the most comparable GAAP numbers, which can be found on the Investor Relations section of our website at www.advantagesolutions.net.

The company has also prepared presentation slides, which are posted on Advantage's Investor Relations website. You may want to refer to the slides during today's call. This call is being webcast, and a recording of this will also be available on the website.

And now I'd like to turn the call over to Tanya Domier.

Thanks, Dan. Hello, everyone. I'm Tanya Domier, and I've been with Advantage for over 30 years. I have the pleasure of serving as CEO since 2013. I'm so excited to be here with you on our first earnings call as a public company after our successful business combination with Conyers Park II in October.

First, I'd like to welcome all of our new investors to the Advantage family. You can rest assured that we'll continue to work hard to earn and to deserve the trust that you place in our team to be stewards of your capital and to build the business sustainably and responsibly for all of our stakeholders over the long term as we've always strived to do.

Since our founding over 3 decades ago, we've accomplished much that we're proud of. We develop the industry's best and most comprehensive portfolio of sales and marketing services for consumer brands and retailers. We nurtured and developed multi-decade long relationships with our largest clients. We built a strong competitive position in core services, protected by most associated with the development of talent, the development of proprietary technology and scale. We invested in service innovation and new capabilities to create better solutions for brands and for retailers' evolving needs. And in doing all of this, we delivered a strong track record of growth and consistent performance across economic cycles with a long history of growth and value creation.

But we at Advantage have a healthy dissatisfaction with the status quo and know that in order to build a business that we're proud of decades from now, we must constantly evolve and challenge ourselves to be better. I like to say that the best is yet to come. That certainly rings true an Advantage today. I feel we're positioned better now than at any other time during my 30 years at the company.

In addition to the leadership we've built in key businesses across our sales and marketing segment, we have multiple opportunities for value-creating growth, both through organic and inorganic avenues. Supported by a steady underlying growth consistent with the stable consumer goods end market that we serve, we expect additional tailwinds over the next couple of years, driven by, first, a recovery from temporary COVID-19 headwinds in portions of our business. Second, growth and adoption of innovative services in e-commerce and digital. And third, capabilities that will continue to add to develop solutions that meet the changing needs of both brands and retailers.

Before I begin discussing the quarter, I want to recognize all of our associates who have worked tirelessly at home and in-store to keep our clients and customer businesses running safely and smoothly throughout this entire COVID-19 pandemic. I could not be more proud of the passion and the performance that they have demonstrated to help communities they need during these trying times by making sure that food and essential products from our brand and retailer partners are available to consumers in-store and online. Without their hard work and their dedication, our communities and our clients would be far worse off.

COVID-19 has presented unique challenges for our business and resulted in a duality of operating conditions within our portfolio. On the one hand, large portions of our operations related to in-store sampling, foodservice and our international joint venture have experienced temporary headwinds from the suspension of activities or virus-related closures, driving these businesses to short-term operational declines over the last couple of quarters.

However, on the other hand, our core headquarter sales and merchandising teams providing services in traditional and e-commerce channels have never been busier. As we respond to stay-at-home consumption patterns. Our associates continue to operate at home and in-store as extensions of our clients' teams, making sure that brands and retailer products are available for consumers at both the shelf and online.

In this business, we've never been more important and valuable to our clients and customers than we are today. Our solutions play a mission-critical role in the network that gets goods to consumers in this country, and I'm so proud of how our industry as a whole has stepped up to meet the unique challenges presented by this virus. It is for the very reason that our employees have been designated as essential workers during this very trying time.

If there's one thing that the virus hasn't changed, it's our focus at Advantage. We strive to never lose sight of what matters, adding value to our clients and customers every single day by helping them effectively and efficiently solve problems and reach their consumers. It's why we exist. As we confidently embark on the next chapter of our journey as a public company, we thank all of our clients, all of our associates and all of our investors who have made this possible.

Now I'll turn quickly to the third quarter highlights. After I conclude my remarks on the business, I'll turn things over to Brian, who will discuss our third quarter financial results. And after that, we'll open up the call for questions.

As mentioned earlier, we successfully completed our business combination with Conyers Park II, and we also refinanced our debt on October 28. We executed very well during the third quarter, and we delivered results that met or exceeded the expectations that we had for the quarter across the business segments. We're seeing the beginning of a recovery in most COVID-impacted operations. And importantly, we're making progress across several fronts that will set us up well for the coming quarters.

Business trends were in line with expectations. Sales segment revenues, earnings and margins remained strong in the quarter. Our teams are executing well and capitalizing on tailwinds from increased at-home consumption and demand for our critical services. The marketing segment revenues and earnings trends improved from the second quarter COVID lows as we started to bring back in-store sampling events in a safe and measured way with our retailer partners.

We also continue to see growth in action of digital and e-commerce sampling program. We're executing well against the value creation strategies that we shared with investors as part of this business combination. We're finding savings and reinvesting in talent, reinvesting in technology and capabilities that allow us to be a better, more valuable partner to our clients.

And finally, we're remaining disciplined and flexible in how we're managing the business as we expect the pandemic disruption to continue over the coming quarters.

Our planning stance that we put in place as we were preparing to combine with Conyers Park assume that the pandemic continues through the first half of next year. We're prepared for difficult months ahead through the winter, and then we believe we will see some improvement in the rules around consumer restrictions and movement in the spring and summer months.

This performance positions us for growth as we round out the year and head into 2021. We should continue to benefit from a COVID recovery as temporarily impacted business lines gradually returned to the full-scale operations over the next year as the impact of the pandemic eases, particularly in the marketing segment as in-store sampling comes back to stores. Foodservice would also regain momentum as well.

We expect some of COVID trends toward at-home consumption and adoption of e-commerce to be durable. This shift should provide a lasting benefit to our business due to the adoption and growth that we've seen in supporting clients in these areas. We would expect that in many categories, some of the increased household penetration and increased frequency driving those in home consumption patterns will be sustainable.

With respect to online purchasing patterns, some of the increase in direct home delivery and online order and pickup will likely be sticky. We're well positioned to benefit from this change, and we'll apply what we've learned over the past few months as we move forward.

When you look at the numbers, you can see the beginning of the recovery that I mentioned earlier. We believe that the third quarter is the beginning of a turn from the pandemic driven lows in Q2. The sales segment continued to be a net beneficiary during the pandemic, while the marketing segment continues to be faced with temporary COVID headwinds, primarily in the in-store sampling business.

Revenues were $784 million for the third quarter of 2020, representing sequential growth of approximately 22% on a quarter-over-quarter basis and an improvement in the year-over-year decline versus the second quarter, going from 30% down against prior year in the second quarter to 20% down in the third. We were especially encouraged to see that the sequential revenue improvement in the third quarter was both in the sales and marketing segment.

In our sales segment, we continue to see the strength in our core headquarter sales and merchandising services in traditional and e-commerce channels, where we benefit from incremental at home consumption. This business continues to trend favorably versus both prior year and prior quarter. We also began to see slow recovery in the foodservice and international businesses, both improving versus second quarter lows. The improvement in foodservice was driven by increased sales volume as restaurant and education channels slowly began to reopen in the quarter.

The improvement in the international business was driven by the easing of COVID related policy restrictions in Europe that allowed our in-store activities to begin to return to operation. We're obviously aware that things are changing quickly, and we are watching the current environment for the return of restrictions, and we'll adjust accordingly.

In our marketing segment, momentum was driven by the beginning of the relaunch of in-store sampling activity with some of our retail accounts as well as growth in our digital business. We temporarily suspended in-store sampling operations in partnership with our retailer clients in March. And over the last few months, we've seen major accounts eager to bring back sampling, of course, in a measured way that protects health and safety. Several retailers began to bring back in-store sampling back to the stores in June, and we're pleased with the progress that we've been making.

Safety protocols are critical, and we have spent considerable time and effort against safety measures to protect our associates and those shopping in store. For example, where the state of local health suggests heightened caution, we are managing the type of events that we're performing in-store to reduce risk, limiting activities to prepackage sampling, talking only and digital event types. We'll flexibly manage event locations and event types as part of the natural evolution of a full recovery to operations, post-COVID.

Importantly, where we have resumed in-store sampling we've received positive feedback from our retail partners, shoppers and the brands that participate in the program. Sampling event volume has increased from approximately 20,000 events in April to approximately 120,000 events in September. This is still below the nearly 400,000 events in September of last year, but this represents a significant rebound, and we expect this trend to continue to improve.

Adjusted EBITDA was $136 million for the third quarter, representing sequential growth of 22% on a quarter-over-quarter basis and a decline of only 6% versus the comparable 2019 period. Favorable mix and a disciplined cost management program have helped us preserve earnings despite the tough revenue headwinds that persisted in the third quarter.

I'm really pleased with how our team has been able to manage cost with discipline during this difficult operating environment. This discipline should set us up nicely for adjusted EBITDA growth as the business recovers.

From an operational perspective, we executed well in the third quarter. In our sales segment, our teams continue to deliver best-in-class execution for clients in the face of unprecedented demand. Our headquarter sales and our retail and merchandising activities have carried on as essential activities through the pandemic, with sales teams working to replenish inventory that's been sold through and our merchandising teams going into the stores every single day to make sure that products are in stock and on shelves for consumer.

In our marketing segment, as I mentioned earlier, our teams have begun to reintroduce in-store sampling in a safe and measured way at several of our retailer partners after being in hibernation for almost all of the second quarter. As I mentioned before, safety is the most important factor we're managing as we relaunch these programs.

And importantly, our teams across our entire enterprise continue to innovate, introducing and scaling valuable new services for clients to help them meet today's unique challenges. These services include, for example, online grocery pickup and e-commerce sampling, virtual advisers in categories such as beauty and more. I'm very proud of the progress we continued to make for clients during these really trying times. I expect our efforts to pay dividends in the form of trust and new business well after the pandemic has passed.

Finally, we remain focused on our mission, which is to create value for all of our stakeholders and continue to make progress against the strategy we outlined in our previous investor conversation. To recap, there are really 3 fundamental pillars of our strategy. First, we're going to work very hard to operate with excellence. This means we'll maniacally focus on delivering best-in-class services to our clients, and we will continuously look for ways to drive productivity, reducing costs and increasing our margins over time.

Second, we'll take a portion of the productivity savings that we generate and the ample free cash flow that our business model produces to reinvest in our services to widen our moat, to accelerate innovation and to drive growth. This includes investing in talent, investing in technology and tools to improve the results and the value that we deliver for clients in our existing services. But it also includes reinvestment in service innovation where we work to add capabilities to create new and better solutions for brands and retailers' evolving challenges. Attractive reinvestment opportunities exist both organically through share gains and new services and inorganically through M&A. We'll continue to use tuck-in acquisitions as a tool to add capability and value for clients where we can deploy capital at attractive prices and prospective returns.

Third, we will nurture and protect our evolutionary culture so that we remain flexible as we build the business and our partners of choice for brands and retailers as their needs change and be able to be nimble and opportunistic when fortune presents us with compelling propositions to build a better, more valuable Advantage.

These 3 pillars work harmoniously to create a virtuous cycle where one strengthens the other. So as we begin our life as a public company, I'm very excited about our future growth and our position in the industry.

Our strategy is simply to continue doing what we've been doing for decades, servicing clients well and prudently reinvesting in capabilities to meet clients' evolving needs. It's a formula that's proven itself worthy over time, and we believe it gives us ample runway to create value for public shareholders in the future. I'm excited to work with our new partners on the Board and to take advantage of our significantly improved balance sheet that will help us execute on this strategy at an accelerated rate.

Importantly, as we do all of this, we will always make decisions and build this business with long-term value creation principles in mind, and we will seek to earn our partners' trust every single day by being good stewards of our clients' businesses and our owners' capital.

With that, I'll now turn it over to Brian to cover our third quarter 2020 financial results and provide an update to our outlook for fiscal 2020.

Thank you, Tanya, and good afternoon, everyone. It's great speaking to you, and let's jump right into the quarterly results. Our total revenue declined $197 million or approximately 20% in the third quarter. This result was driven by organic declines in the marketing segment of $241 million, which contributed 25 percentage points of the decline, partially offset by organic growth in the sales segment of $29 million, which contributed 3 percentage points of the offsetting growth; and the contribution from acquisitions closed earlier this year of $14 million, which contributed another 1 percentage point of offsetting growth. The organic decline in the marketing segment was primarily driven by the temporary headwinds from the suspension of the in-store sampling program we managed on behalf of the retailers in response to COVID-19.

As Tanya mentioned earlier, these programs were largely positive in March and only really started to resume their safe and measured return to operation through the course of the third quarter.

The organic growth in the sales segment was driven by the continued strength in our core headquarter sales and merchandising services and traditional channels and e-commerce.

Our teams have continued to support clients throughout the pandemic by providing essential sales of merchandising services in store and online. The incremental at-home consumption we've seen during the pandemic and acceleration of the online sales at retail partners have been tailwinds to our sales business that we expect to continue throughout the balance of the year.

Despite a revenue decline of approximately 20%, adjusted EBITDA of $136 million was only down $9 million or 6% versus prior year. The total company decline was driven almost entirely by the COVID-related declines in the marketing segment, which were partially offset by growth in the sales segment.

This earning resiliency is a testament to 2 things: our highly variable cost structure and our team's great efforts to manage the business with discipline during the pandemic's disruption.

Turning to margins. The third quarter was another strong quarter for adjusted EBITDA margins, coming in at 17.4% or approximately 260 basis points higher than the third quarter of 2019. This year-over-year margin improvement is primarily attributable to the higher margin revenue mix in the current year with some smaller permanent savings from real estate optimization contributing in the quarter. The favorable mix is twofold: one, businesses in our portfolio that were negatively impacted during the pandemic, such as in-store sampling, were generally lower margin components of the revenue mix; and two, businesses in our portfolio that are growing through the pandemic, such as our in-store and online sales and merchandising services in the sales segment generally generate accretive incremental margins. Obviously, some of the margin gains will reverse when we return to a more typical mix post-COVID, but the improvements in areas such as real estate will be lasting.

Moving to the summary of our capitalization. Prior to the closing of the business combination with Conyers Park II in late October. The Q3 balance sheet included total debt of $3.3 billion. This debt was refinanced as part of our business combination, resulting in a significant reduction in balance sheet leverage and a meaningful improvement in the maturity profile of our debt capitalization.

Net debt to adjusted EBITDA was reduced from approximately 5.7x pre-transaction to approximately 4.1x post combination on a pro forma basis, marketing leverage in both instances off of LTM Q3 2020 adjusted EBITDA of $499 million. This will yield meaningful cash interest savings that we expect to benefit cash flow for discretionary reinvestment by over $70 million on a pretax basis.

Near term 2021 and 2022, term loan maturities under the old capital structure were refinanced, and we now have no meaningful maturities in the next 5 years.

Following our business combination, our total funded debt outstanding was approximately $2.2 billion. The debt capitalization consists of a new $400 million ABL revolver, on which we have approximately $100 million of borrowing outstanding, post close. This facility accrues interest on a floating basis and was priced at LIBOR plus 2.25% with a 50 basis points LIBOR floor. We also had a new $1.325 billion first lean term loan. This facility accrues interest on a floating basis and was priced at LIBOR plus 5.25% with a 75 basis point LIBOR floor. And then lastly, we had a $775 million new senior secured notes. These notes accrue interest at a fixed 6.5% per annum.

Following our business combination, our equity capitalization consisted of 313,425,182 shares of Class A common stock outstanding, 5 million performance shares subject to vesting based on a market test, which we would not have met at the current share price and 18,583,333 warrants at $11.50 exercise price that would not be in the money at the current share price.

As we look to the rest of 2020, we now expect adjusted EBITDA in the range of $480 million to $485 million, an increase from the $475 million that we estimated earlier in the year as part of our business combination. This increase to our adjusted EBITDA forecast reflects our expectation that the strength in the sales segment continues through the fourth quarter and that the marketing segment continues to gradually recover from COVID-related headwinds, but with a slightly different mix in revenues that we previously anticipated, which I'll explain a bit further in a moment.

Total revenues are expected to decline 16% to 19% versus 2019 revenues of $3.785 billion. This is slightly lower or in line with the 15% decline we had estimated earlier in the year. This slight revision to the revenue forecast is primarily driven by the marketing segment's sampling business and lower expected zero-margin pass-through revenues associated with the virtual and talking-only event types, which we now expect to comprise a larger portion of the event mix in the fourth quarter given what we are seeing develop on the COVID fronts in parts of the country.

To explain this concept a little further, when we do a traditional sampling event, we would purchase a manufacturer's product that is given to the shoppers as part of the event. This product purchase is reimbursed by the manufacturers who purchased the sampling event. When we are doing more talking-only or virtual types -- event types, like the ones we are expecting in the fourth quarter, we would not purchase as much reimbursable products to be shared as samples as part of these events. This results in both lower revenues and lower costs but does not materially change the contribution dollars.

Turning to the balance sheet. The net leverage ratio expected to be approximately 4.2x at the end of the year, these revised expectations assume no further acquisitions for the balance of the year, no material change in how COVID is currently expected to impact the business for the remainder of the fourth quarter and the trends that we have seen to date continue as expected.

As Tanya shared earlier, we are pleased with the momentum we continue to see in the business, especially as COVID-19 impacted business [resume] -- begin to ramp back. We expect strength that we saw in the third quarter in our sales segment and continues throughout the remainder of the year.

We also expect to continue to benefit from the momentum in the marketing segment driven by the gradual recovery of the in-store sampling business and favorable growth and mix in the segment's e-commerce sampling and digital businesses. Please note that we expect to provide 2021 guidance when we report our fiscal 2020 results in early 2021. We remain highly confident in the EBITDA target we shared for 2021 during the investor meetings.

In summary, the business continues to be resilient in the face of headwinds presented by COVID-19. We are encouraged by the progress we are seeing in early recovery in COVID-impacted operations. We feel good about the momentum we have heading into the fourth quarter and to 2021 and remain focused on executing our value creation strategies, focusing on the productivity, reinvesting in attractive organic and acquisition opportunities to create value.

And with that, I will turn it back over to Tanya for any concluding remarks she has.

Thanks, Brian. Again, thank you, everyone, so much for joining us today on our first earnings call as a public company. We're excited to welcome our new shareholders, and we look forward to continuing to earn and deserve your investment every day by working to create sustainable long-term business value for all of our stakeholders. I'd now like to ask the operator to open the call for questions.

(Operator Instructions) And our first question will come from Jason English with Goldman Sachs.

Congratulations on your first public conference call. We covered a lot of ground before this, but maybe a couple of quick questions. I know acquisitions have long been a key component of your growth strategy. And you put effectively a pretty big pause, an entire pause, fairly large pause on that activity during COVID. Is any of that loosening back up? Should we expect given the uncertainty in the environment for M&A to remain on the back burner for the next couple of quarters, maybe beyond? Or are we at a point now where there's some pent-up demand with some pent-up pipeline, that we could expect to see the pace of acquisitions reaccelerate?

Thanks for the question, Jason. Our M&A pipeline is very healthy both in quantity and quality. And we expect to continue with our exact name value creation strategy. It's a simple one, but it works. You know that our primary mission is to serve our clients well, and we do that with our base mission critical services. But we're also always using our position as that strategic intermediary to figure out how to evolve our services because problems in the industry for brands and retailers are what we do best. We go to work. We provide new services that help them grow.

And as you also know, we use the high free cash flow conversion that we have in the build business for both tuck-in M&A and organic and building businesses. So while you won't see us do large acquisitions, you'll see us continue to do tuck-in acquisitions, and we expect to get back to the acquisition program in full force in 2021.

That's helpful. And I guess I wanted to come back, Brian, to the explanation of the slightly lower revenue outlook for the year. I get that sort of slight on the year, but if we just isolate for the fourth quarter, which is effectively it is, right? So it's a lower view of the fourth quarter. We're talking about from an 11% sales decline at the midpoint, something closer to 19 and it's like $80 million to $90 million swing, which was fairly chunky. Is all that due just to this -- the different mechanisms of the different type of demos that you're expecting? And if so, why was your view of what demos would look like so different just a few short weeks ago.

So it is definitely the primary driver. And as you know, it's pretty fluid in terms of restrictions in different states. But the most important thing is that brands and retailers really want to be able to get the samples to consumers and provide that differentiated experience. And fortunately, we invested, pre-COVID, in things like digital demos so that we were able to accelerate this as COVID came to us. And we continue to pivot more of the sampling events to virtual and talking-only type events as opposed to traditional sampling right now. And while these virtual talking demos do generate less revenue because we're not purchasing products, and we're not recording that zero-margin passthrough revenue, they don't at all affect the contribution dollars of our sampling business.

So this mix and shift is neutral to contribution dollars generated, and that is reflected also in the confidence in our economic model. You saw us take up our EBITDA range to $480 million to $485 million. So yes, the difference is not getting us buy that product for sampling, so less zero-margin passthrough.

And why we expect that these conditions are going to continue to be somewhat dynamic with retailers and conditions. And until we have a vaccine broadly available, we're ready to pivot, and digital demo is an area, like I said, it's been accelerated by the pandemic, and we are going to continue to pivot and execute more digital and talking demos so that brands and retailers can still execute this important consumer tactic during this COVID period. And there was some of that in the mix in Q3 too, but the change is primarily in the view for Q4 as we're seeing restrictions continue. The good news is talking demos and digital demos are working for our brands and our retailers.

One more and then I'll pass it on. The -- sorry, where was my head on this one, I just completely drew a blank but bear with me. It will come back to me.

Competitive activity, competitive environment. 2 of your biggest competitors have now been recapitalized. Just out of curiosity. Obviously, these are some wild times we're in. So it's hard to get a good beat on anything in this environment. But I'm curious if you're seeing any change in the competitive environment or the actions of some of your key competitors in the wake of those changes?

No, we haven't. We've seen rational behavior, and I think they're working on diversifying services and investing in their business in many of the same ways that they saw us do that over the last 5 years, at least that's what we've seen to this point.

(Operator Instructions) Our next question will come from Marlane Pereiro with Bank of America Merrill Lynch.

Regarding your adjusted EBITDA, it's great seeing the range increased but if I back out 4Q, the trend is a little -- is lower than what we've seen in terms of declines on a year-over-year basis. So I was wondering if you can provide some commentary on there because in 2Q and 3Q we consistently seen a decline around 6%, kind of backing out 4Q based on the range that you provided, it's definitely higher than that and implies a lower margin. So I was wondering if you could provide any commentary there.

So we're not getting into segment, but there's some year-over-year comps in there in the fourth quarter, but the material revenue drivers are what we outlined in terms of sampling, but the change that you're seeing would be year-over-year comp.

Our next question will come from Ashish Sabadra with Deutsche Bank.

Let me add my congratulations as well on the first earnings call. Question on the e-commerce sampling. What kind of traction have you seen lately with that? And how should we think about -- like what percentage of the events are they currently? And how do you expect that to evolve over the next 3 to 5 years?

That's a good question. So you see reduction of these platforms, you really accelerate through this pandemic and (inaudible) shoppers is up, as you know, from the pre-pandemic level of 5% to [10%] today. And while I think the use of these online platforms will likely pick down as people are able to get back to more routine shopping, we do believe that some of the acceleration that we've seen in these platforms will stick with households who can't afford these luxuries and value-trading fees for convenience.

And like we're seeing in so many different industries, it feels like the pandemic has pulled the future forward by 10 years, and this evolution is really good for our business. Generally, new challenges for brands and consumers give us new problems to help solve them. And as you know, we've been investing in omni-channel capabilities and talent to help brands and retailers prepare for greater adoption of digital commerce for some time now. So we were well positioned to help when this pandemic surprised us all.

We've accelerated a lot of the conversations that we've had with brands and with retailers, and we've seen great adoption of our solutions to help those brands and retailers how to figure out how to win during and after COVID. And some of the great examples of this are the work that we're doing with retailers to help them differentiate and drive value with their pickup and delivery platforms. It also includes introducing sampling packs for online grocery pickup and e-commerce delivery orders and the work that we're doing with brands to help them design and execute a proficient and efficient sales strategy to win at omni-channel and pure-play e-commerce customers. And this includes first and third-party sales representation at retailers like Amazon and a host of other sales and merchandising solutions at omnichannel retailers, and we help them better sell and position their products online.

The economics in these businesses are good for us since (inaudible) to be intensive, less labor-intensive than in-store analogs, and you'll continue to see us invest in these areas and build solutions to help both retailers and brands solve problems.

Tanya, that was very helpful color. So it looks like a lot of structural benefit to the business coming out of the crisis. And maybe just a follow-up there is on the sales side. So sales, obviously, has seen pretty good momentum, just maybe from the stay-at-home. How sustainable -- can you provide any more color on the sales front as well? I know you provided some color there, but any incremental thoughts there?

Yes. Absolutely. We believe that some of these consumers' shift in behavior in terms of eating at home, and all of the behaviors that have been driven in for a post-COVID world, we believe, will continue. But what we've done is, because we've been really thinking through it as the strategic intermediary between the brand and the customer, it's something that we've really been focused on understanding.

And in October, we did a study of client concerns and opportunities during COVID, and we asked a number of questions around 2021 needs and expectations. And interestingly, the concerns on the needs were fairly universal. And it's pretty broad. We did our study which was proprietary with 55 consumer packaged goods companies and 11 retailers. And our collective view based on that study and our position sitting really, listening to brands and retailers and hearing their thoughts and their needs is that the environment that we see is sales will likely continue to climb through Q1. We expect to show decline in Q2, while all of these brands and retailers are comping the period of intensive pantry loading at the beginning of COVID-19. And likely, will get and continue modest tailwinds in Q3 and Q4 as people eat out more as vaccinations occur but continue that consumer behavior that we believe has been changed for at least the mid-term despite vaccines because we believe pantries and refrigerators will be more full on an ongoing basis post-COVID with people working and living differently.

And we also validated through our study that brands need to work with retailers to align promotional efforts to make sure that their growth and share strategies for first through the fourth quarter really continue. Brands are concerned about transportation, disruption in supply chain. Retailers are concerned with processing and manufacture issues.

And I think it was really clear to us that both brands and retailers expect an increase in online spending in 2021. They both expect funds to be spent on digital marketing. And they're really looking for the most effective and efficient way to do so in this quickly evolving landscaping, all tying back to execution in-store and making their dollars work for them. And all of them were universally looking for ways to ensure that, that strategic focus is there on their brand building while there's this opportunity to capitalize on these tailwinds in sales.

We believe that these strategic solutions that closely tie to execution and performance for brands and retailers that we've built over the last few years and have been accelerated by COVID will give us the opportunity to solve these important problems for brands and retailers and new problems that arise as we get out of a post-COVID world.

That's very, very helpful color. And maybe if I can sneak in another third one. Just on the EBITDA margins, you talked about certain margin expansion driven by mix but also certain cost takeout measures. Can you just talk about how much of those cost takeouts may be sustainable going forward? I understand the mix could shift going forward. But are there any cost takeouts, which are permanent cost takeouts going forward as well?

Yes, absolutely. We've implemented permanent saving initiatives that will contribute a little bit more than $15 million of savings on an annualized basis. And we'd expect this to improve the margin on an ongoing basis, and the rest is predominantly mix. We do expect the mix of business to improve post-COVID from the growth that we captured in some of these higher-margin business units and the acceleration of adoption of higher-margin services during the pandemic that we think will stick. A good example of this is the online sampling business. This business has gone from around $10 million in revenues in '19 to over $70 million in revenues on a run rate basis heading into next year. And it's a higher-margin business than in-store analog since it's less labor-intensive, and it's got more scalable margins. We've also added new business in the sales segment that's accretive to margins. But you're right, the mix will normalize with a COVID recovery and will impact margins, particularly as the in-store sampling business comes back online.

(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Tanya Domier for any closing remarks. Please go ahead.

Thank you, everybody, for your participation and your support. We really appreciate it, and have a great night. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.