UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM
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CURRENT REPORT
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 – Results of Operations and Financial Condition
On August 9, 2021, Advantage Solutions Inc. (the “Company”) issued a press release announcing its financial results for the three months ended June 30, 2021. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference herein.
On August 9, 2021, at 5:00 p.m. ET, the Company will host a conference call announcing its financial results for the three months ended June 30, 2021. A copy of management’s earnings presentation materials is attached as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated by reference herein. The presentation will be accessible, live via audio broadcast, through a link posted on the Investor Relations section of the Company’s website at https://ir.advantagesolutions.net. This presentation will be available for audio replay for one week following the call.
The Company makes reference to non-GAAP financial information in the press release and earnings presentation materials. The Company’s non-GAAP financial measures should be viewed in addition to and not as a substitute for or superior to the Company's reported results prepared in accordance with GAAP. Reconciliation of these non-GAAP financial measures to the nearest comparable GAAP financial measures are contained in the data tables at the end of the press release and earnings presentation materials.
Item 7.01 Regulation FD Disclosure
The information set forth under Item 2.02 is incorporated by reference into this Item 7.01.
The information being furnished pursuant to Item 2.02 and Item 7.01 of this Current Report on Form 8-K, including the accompanying Exhibits 99.1 and 99.2, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Cautionary Note Regarding Forward-Looking Statements
The press release and earnings presentation include information that may be considered forward-looking statements within the meaning of the federal securities laws, including statements regarding the expected future performance of the Company’s business. Forward-looking statements generally relate to future events or the Company’s future financial or operating performance. These forward-looking statements generally are identified by the words “may,” “should,” “expect,” “intend,” “will,” “would,” “estimate,” “anticipate,” “believe,” “predict,” “potential” or “continue,” or the negatives of these terms or variations of them or similar terminology. Such forward-looking statements are predictions, projections and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward looking statements.
Detailed risk factors affecting the Company are set forth in the section titled “Risk Factors” in the Annual Report on Form 10-K/A filed by the Company with the Securities and Exchange Commission (the “SEC”) on May 17, 2021 and in its other filings made from time to time with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements, and the Company assumes no obligation and does not intend to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
|
Exhibit No. |
Description | |
| 99.1 | Press Release issued by Advantage Solutions Inc., dated August 9, 2021. | |
| 99.2 | Management’s Earnings Presentation for Advantage Solutions Inc., dated August 9, 2021. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: August 9, 2021
| ADVANTAGE SOLUTIONS INC. | ||
| By: | /s/ Brian Stevens | |
| Brian Stevens | ||
| Chief Financial Officer and | ||
| Chief Operating Officer | ||
FOR IMMEDIATE RELEASE
Advantage Solutions Reports
Solid Second Quarter 2021 Financial Results and Raises 2021 Outlook
Irvine, Calif, August 9, 2021 – Advantage Solutions Inc. (NASDAQ: ADV) (“Advantage,” the “Company,” “we” or “our”), the leading provider of outsourced sales and marketing services to consumer goods manufacturers and retailers, today reported financial results for its fiscal second quarter ended June 30, 2021.
“We are pleased to report solid second quarter financial results,” said Tanya Domier, Chief Executive Officer of Advantage. “Our COVID-impacted services are rebounding steadily, especially in-store sampling. At-home demand volume remains elevated, while pricing is an additional tailwind. And services we scaled rapidly during the pandemic in digital and e-commerce are staying strong. We are pleased with our trajectory and confident in second half momentum,” Domier commented. “Given sustained strength in our sales segment and ramping recovery in our marketing segment during the second quarter, we are raising our FY 2021 Adjusted EBITDA guidance by $5 million to a range of $520 to $530 million.”
“Importantly, I’d like to again thank our associates. They continue to be instrumental in helping consumer goods companies and retailers navigate out of this pandemic, providing our essential services better, cheaper and faster,” Domier added.
Second Quarter 2021 Highlights
| · | Revenues were $850.0 million for the second quarter of 2021, representing an increase of $208.4 million, or 32.5%, from the second quarter of 2020 revenues of $641.5 million. |
| · | Operating income was $42.4 million for the second quarter of 2021, representing growth of $42.4 million from the second quarter of 2020 operating income of approximately zero. |
| · | Net income was $5.8 million for the second quarter of 2021, representing an improvement of $43.6 million from the second quarter of 2020 net loss of $37.8 million. |
| · | Adjusted EBITDA was $122.0 million for the second quarter of 2021, representing growth of $9.9 million, or 8.9%, from the second quarter of 2020 Adjusted EBITDA of $112.0 million. |
The year-over-year increase in revenues was driven by $107.0 million growth in the marketing segment (an increase of 59% year-over-year), and $101.4 million of growth in the sales segment (an increase of 22% year-over-year). The second quarter’s growth in the marketing segment was driven by solid sequential recovery in product demonstration and sampling and continued outperformance in our digital businesses. The second quarter’s growth in the sales segment was driven by strong growth in our retailer merchandising services and steady rebounds in food service and international as COVID restrictions ease.
Second quarter 2021 operating income grew $42.4 million, to $42.4 million compared to approximately zero for the second quarter of 2020. The year-over-year growth in operating income was driven primarily by a decrease in non-recurring expenses associated with real estate realignment initiatives.
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Second quarter 2021 net income increased $43.6 million, to $5.8 million compared to a net loss of $37.8 million for the second quarter of 2020. The year-over-year growth in net income was driven primarily by higher operating income and lower interest expense, partially offset by a higher provision for income taxes and a fair value adjustment to warrant liability.
Second quarter 2021 Adjusted EBITDA grew $9.9 million, or 8.9%, to $122.0 million compared to $112.0 million for the second quarter of 2020. The year-over-year growth in Adjusted EBITDA was driven primarily by the continued recovery of in-store sampling and growth in our digital businesses, partially offset by modest expected volume normalization in our headquarter sales services when compared to strong prior year periods and investment to stand up tens of thousands of associates on behalf of clients to restart lines of business dormant during COVID-19.
Balance Sheet Highlights
As of June 30, 2021, the Company’s cash and cash equivalents balance was $159.8 million, total debt was $2,040.4 million and Net Debt was $1,936.5 million. The post-combination debt capitalization consists primarily of a $1,318.4 million first lien term loan facility, $775 million of senior secured notes and a $400 million revolving credit facility, under which no balance was outstanding at the end of the quarter ended June 30, 2021.
COVID-19 Update
Advantage continues to monitor the impact of the COVID-19 pandemic on its business and remains focused on: ensuring its ability to safeguard the health of its employees, maintaining high service levels for brand and retailer clients so that essential products are available to consumers in-store and online, and preserving financial liquidity to mitigate the uncertainty caused by the pandemic.
The Company is lapping the peak prior year lift from the COVID-19 pandemic in the Company’s sales segment.
The Company’s headquarter sales and retail merchandising services in traditional and e-commerce channels experienced peak ‘pantry loading’ due to the COVID-19 pandemic in the second quarter of 2020. While at-home demand volumes remain elevated versus pre-pandemic levels, they are normalizing. More recently, we have seen recovery in our food service business which was impacted by lower away-from-home demand on various channels, including restaurants, education and travel and lodging. Additionally, our European business has started to show growth after restrictions were lifted on activity in the various European geographies in which we operate.
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The COVID-19 pandemic continues to be a temporary headwind in the marketing segment.
The Company’s in-store sampling business, the largest category in the marketing segment, continues to recover from activity restrictions implemented in partnership with retailer clients in order to protect the health and safety of associates and consumers during the pandemic. In-store sampling event activity resumed in a safe and limited manner in the third quarter of 2020 and has continued its measured recovery towards pre-COVID levels throughout the second quarter of 2021. Event counts have climbed from a low of approximately 23,000 in April 2020 to 178,000 in June 2021, with more retailers expected to resume in-store sampling over the balance of the year.
The Company expects the COVID-19 pandemic will continue to impact its various businesses into the second half of 2021. This is based on the belief that a certain degree of restrictions on mobility and activities are likely to remain in place until such time as vaccines can be further distributed and administered, and new virus variants are contained.
FY 2021 Outlook
While the range of fundamental outcomes remains wider than normal, our Company’s strong first half performance and solid second half outlook give us confidence in raising our fiscal year 2021 Adjusted EBITDA guidance to a range of $520 to $530 million. Our forecasted Adjusted EBITDA assumes that elevated at-home demand for consumer goods normalizes through the second half of 2021, that weakness in the marketing segment from COVID-related headwinds eases into the second half, that we continue to invest in sampling innovation and trade promotion optimization, and that the costs to recruit, train and retain large teams of new associates post-pandemic will remain elevated.
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Conference Call Details
Advantage will host a conference call at 5:00 p.m. ET on August 9, 2021 to discuss its second quarter financial performance and business outlook. To participate, please dial (877) 407-4018 within the United States or (201) 689-8471 outside the United States approximately 10 minutes before the scheduled start of the call. The conference ID for the call is 13719007. The conference call will also be accessible, live via audio broadcast, on the Investor Relations section of the Advantage website at https://ir.advantagesolutions.net/
A replay of the conference call will be available online at https://ir.advantagesolutions.net/. In addition, an audio replay of the call will be available for one week following the call and can be accessed by dialing (844) 512-2921 within the United States or (412) 317-6671 outside the United States. The replay ID is 13719007.
About Advantage Solutions
Advantage Solutions is the leading provider of outsourced sales and marketing solutions to consumer goods companies and retailers. We have a strong platform of technology-enabled, competitively advantaged services like headquarter sales, retail merchandising, in-store sampling, digital commerce and shopper marketing. For brands and retailers of all sizes, we help get the right products on the shelf (whether physical or digital) and into the hands of consumers (however they shop). As a trusted partner and problem solver, we help our clients sell more while spending less. Headquartered in Irvine, California, Advantage has offices throughout North America and strategic investments in select markets throughout Africa, Asia, Australia and Europe through which it services the global needs of multinational, regional and local manufacturers. For more information, please visit advantagesolutions.net.
Forward-Looking Statements
Certain statements in this press release may be considered forward-looking statements within the meaning of the federal securities laws, including statements regarding the expected future performance of Advantage’s business. Forward-looking statements generally relate to future events or Advantage’s future financial or operating performance. These forward-looking statements generally are identified by the words “may”, “should”, “expect”, “intend”, “will”, “would”, “estimate”, “anticipate”, “believe”, “predict”, “potential” or “continue”, or the negatives of these terms or variations of them or similar terminology. Such forward-looking statements are predictions, projections and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward looking statements.
Factors that may cause actual results to differ materially from current expectations include, but are not limited to, the COVID-19 pandemic and the measures taken in response thereto; the availability, acceptance, administration and effectiveness of any COVID-19 vaccine; changes to labor laws or wage or job classification regulations, including minimum wage, or other market-driven wage changes; Advantage’s ability to continue to generate significant operating cash flow; client procurement strategies and consolidation of Advantage’s clients’ industries creating pressure on the nature and pricing of its services; consumer goods manufacturers and retailers reviewing and changing their sales, retail, marketing, and technology programs and relationships; Advantage’s ability to successfully develop and maintain relevant omni-channel services for our clients in an evolving industry and to otherwise adapt to significant technological change; Advantage’s ability to effectively remediate material weaknesses and maintain proper and effective internal controls in the future; potential and actual harms to Advantage’s business arising from the Take 5 Matter; Advantage’s substantial indebtedness and our ability to refinance at favorable rates; and other risks and uncertainties set forth in the section titled “Risk Factors” in the Annual Report on Form 10-K/A filed by the Company with the Securities and Exchange Commission (the “SEC”) on May 17, 2021 and in its other filings made from time to time with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements, and Advantage assumes no obligation and does not intend to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
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Non-GAAP Financial Measures and Related Information
This press release includes certain financial measures not presented in accordance with generally accepted accounting principles (“GAAP”), including EBITDA for economic interests in investments, Adjusted EBITDA, Adjusted Net income and Net Debt. These are not measures of financial performance in accordance with GAAP and may exclude items that are significant in understanding and assessing the Advantage’s financial results. Therefore, the measures are in addition to, and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP, and should not be considered in isolation or as an alternative to net income, cash flows from operations or other measures of profitability, liquidity or performance under GAAP. You should be aware that Advantage’s presentation of these measures may not be comparable to similarly-titled measures used by other companies. Reconciliations of historical non-GAAP measures to their most directly comparable GAAP counterparts are included below.
Advantage believes these non-GAAP measures provide useful information to management and investors regarding certain financial and business trends relating to Advantage’s financial condition and results of operations. Advantage believes that the use of Adjusted EBITDA, Adjusted Net Income and Net Debt provides an additional tool for investors to use in evaluating ongoing operating results and trends in and in comparing the Advantage’s financial measures with other similar companies, many of which present similar non-GAAP financial measures to investors. Non-GAAP financial measures are subject to inherent limitations as they reflect the exercise of judgments by management about which expense and income are excluded or included in determining these non-GAAP financial measures. Additionally, other companies may calculate non-GAAP measures differently, or may use other measures to calculate their financial performance, and therefore Advantage’s non-GAAP measures may not be directly comparable to similarly titled measures of other companies.
Adjusted Net Income means net income (loss) before (i) impairment of goodwill and indefinite-lived assets, (ii) amortization of intangible assets, (iii) equity based compensation of Karman Topco L.P. (“Topco”) and Advantage’s private equity sponsors’ management fee, (iv) change in fair value of warrant liability, (v) fair value adjustments of contingent consideration related to acquisitions, (vi) acquisition-related expenses, (vii) costs associated with COVID-19, net of benefits received, (viii) EBITDA for economic interests in investments, (ix) restructuring expenses, (x) litigation expenses, (xi) (Recovery from) loss on Take 5, (xii) costs associated with the Company’s investigation into Take 5’s operations, (xiii) other adjustments that management believes are helpful in evaluating our operating performance, and (xiv) related tax adjustments.
Adjusted EBITDA means net income (loss) before (i) interest expense, net, (ii) (benefit from) provision for income taxes, (iii) depreciation, (iv) impairment of goodwill and indefinite-lived assets, (v) amortization of intangible assets, (vi) equity based compensation of Karman Topco L.P. and Advantage’s private equity sponsors’ management fee, (vii) change in fair value of warrant liability, (viii) stock-based compensation expense, (ix) fair value adjustments of contingent consideration related to acquisitions, (x) acquisition-related expenses, (xi) costs associated with COVID-19, net of benefits received, (xii) EBITDA for economic interests in investments, (xiii) restructuring expenses, (xiv) litigation expenses, (xv) (Recovery from) loss on Take 5, (xvi) costs associated with the Take 5 Matter and (xvii) other adjustments that management believes are helpful in evaluating our operating performance.
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Net Debt represents the sum of current portion of long-term debt and long-term debt, less cash and cash equivalents and debt issuance costs. With respect to Net Debt, cash and cash equivalents are subtracted from the GAAP measure, total debt, because they could be used to reduce the debt obligations.
This press release also includes certain estimates and projections of Adjusted EBITDA, including with respect to expected 2021 results. Due to the high variability and difficulty in making accurate estimates and projections of some of the information excluded from Adjusted EBITDA, together with some of the excluded information not being ascertainable or accessible, Advantage is unable to quantify certain amounts that would be required to be included in the most directly comparable GAAP financial measures without unreasonable effort. Consequently, no disclosure of estimated or projected comparable GAAP measures is included and no reconciliation of such forward-looking non-GAAP financial measures is included.
Reconciliation of GAAP to Non-GAAP Historical Financial Measures
Results of Operations for the Three Months Ended June 30, 2021 and 2020
| Three Months Ended June 30, | ||||||||||||||||
| (amounts in thousands) | 2021 | 2020 | ||||||||||||||
| Revenues | $ | 849,954 | 100.0 | % | $ | 641,543 | 100.0 | % | ||||||||
| Cost of revenues | 698,226 | 82.1 | % | 509,923 | 79.5 | % | ||||||||||
| Selling, general, and administrative expenses | 46,607 | 5.5 | % | 80,569 | 12.6 | % | ||||||||||
| Recovery from Take 5 | — | 0.0 | % | (7,700 | ) | (1.2 | )% | |||||||||
| Depreciation and amortization | 62,674 | 7.4 | % | 58,748 | 9.2 | % | ||||||||||
| Total expenses | 807,507 | 95.0 | % | 641,540 | 100.0 | % | ||||||||||
| Operating income | 42,447 | 5.0 | % | 3 | 0.0 | % | ||||||||||
| Other expenses: | ||||||||||||||||
| Change in fair value of warrant liability | (7,059 | ) | (0.8 | )% | — | 0.0 | % | |||||||||
| Interest expense, net | 37,189 | 4.4 | % | 51,521 | 8.0 | % | ||||||||||
| Total other expenses | 30,130 | 3.5 | % | 51,521 | 8.0 | % | ||||||||||
| Income (loss) before income taxes | 12,317 | 1.4 | % | (51,518 | ) | (8.0 | )% | |||||||||
| Provision for (benefit from) income taxes | 6,563 | 0.8 | % | (13,704 | ) | (2.1 | )% | |||||||||
| Net income (loss) | $ | 5,754 | 0.7 | % | $ | (37,814 | ) | (5.9 | )% | |||||||
| Other Financial Data | ||||||||||||||||
| Adjusted Net Income(1) | $ | 41,397 | 4.9 | % | $ | 38,802 | 6.0 | % | ||||||||
| Adjusted EBITDA(1) | $ | 121,971 | 14.4 | % | $ | 112,044 | 17.5 | % | ||||||||
| (1) | We present Adjusted Net Income because we use it as a supplemental measure to evaluate the performance of our business in a way that also considers our ability to generate profit without the impact of items that we do not believe are indicative of our operating performance or are unusual or infrequent in nature and aid in the comparability of our performance from period to period. Adjusted Net Income should not be considered as an alternative for net income (loss), our most directly comparable measure presented on a GAAP basis. |
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We present Adjusted EBITDA because it is a key operating measure used by us to assess our financial performance. This measure adjusts for items that we believe do not reflect the ongoing operating performance of our business, such as certain noncash items, unusual or infrequent items or items that change from period to period without any material relevance to our operating performance. We evaluate this measure in conjunction with our results according to GAAP because we believe it provides a more complete understanding of factors and trends affecting our business than GAAP measures alone. Furthermore, the agreements governing our indebtedness contain covenants and other tests based on measures substantially similar to Adjusted EBITDA. Adjusted EBITDA should not be considered as an alternative for net income (loss), our most directly comparable measure presented on a GAAP basis.
A reconciliation of net income (loss) to Adjusted Net Income is provided in the following table: |
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| (in thousands) | ||||||||
| Net income (loss) | $ | 5,754 | $ | (37,814 | ) | |||
| Less: Net loss attributable to noncontrolling interest | (367 | ) | (410 | ) | ||||
| Add: | ||||||||
| Equity based compensation of Topco and Advantage Sponsors’ management fee(a) | (1,642 | ) | 4,184 | |||||
| Change in fair value of warrant liability | (7,059 | ) | — | |||||
| Fair value adjustments related to contingent consideration related to acquisitions(c) | 3,598 | 4,128 | ||||||
| Acquisition-related expenses(d) | 2,797 | 4,861 | ||||||
| Restructuring expenses(e) | 6,934 | 46,565 | ||||||
| Litigation expenses(f) | — | 2,500 | ||||||
| Amortization of intangible assets(g) | 49,172 | 47,652 | ||||||
| Costs associated with COVID-19, net of benefits received(h) | (3,328 | ) | (1,019 | ) | ||||
| Recovery from Take 5 | — | (7,700 | ) | |||||
| Costs associated with the Take 5 Matter(i) | 1,310 | 661 | ||||||
| Tax adjustments related to non-GAAP adjustments(j) | (16,506 | ) | (25,626 | ) | ||||
| Adjusted Net Income | $ | 41,397 | $ | 38,802 | ||||
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A reconciliation of net income (loss) to Adjusted EBITDA is provided in the following table:
| Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| (in thousands) | ||||||||
| Net income (loss) | $ | 5,754 | $ | (37,814 | ) | |||
| Add: | ||||||||
| Interest expense, net | 37,189 | 51,521 | ||||||
| Provision for income taxes | 6,563 | (13,704 | ) | |||||
| Depreciation and amortization | 62,674 | 58,748 | ||||||
| Equity based compensation of Topco and Advantage Sponsors’ management fee(a) | (1,642 | ) | 4,184 | |||||
| Change in fair value of warrant liability | (7,059 | ) | — | |||||
| Stock based compensation expense(b) | 8,988 | — | ||||||
| Fair value adjustments related to contingent consideration related to acquisitions(c) | 3,598 | 4,128 | ||||||
| Acquisition-related expenses(d) | 2,797 | 4,861 | ||||||
| EBITDA for economic interests in investments(k) | (1,807 | ) | (887 | ) | ||||
| Restructuring expenses(e) | 6,934 | 46,565 | ||||||
| Litigation expenses(f) | — | 2,500 | ||||||
| Costs associated with COVID-19, net of benefits received(h) | (3,328 | ) | (1,019 | ) | ||||
| Recovery from Take 5 | — | (7,700 | ) | |||||
| Costs associated with the Take 5 Matter(i) | 1,310 | 661 | ||||||
| Adjusted EBITDA | $ | 121,971 | $ | 112,044 | ||||
| (a) | Represents the management fees and reimbursements for expenses paid to certain of the Advantage Sponsors (or certain of the management companies associated with it or its advisors) pursuant to a management services agreement in the three and six months ended June 30, 2021 and 2020. Also represents expenses related to (i) equity-based compensation expense associated with grants of Common Series D Units of Topco made to one of the Advantage Sponsors, (ii) equity-based compensation expense associated with the Common Series C Units of Topco as a result of transactions entered into in connection with our business combination with Conyers Park (the “Transactions”), (iii) compensation amounts associated with the Company’s Management Incentive Plan originally scheduled for potential payment March 2022 that were accelerated and terminated as part of the Transactions, and (iv) compensation amounts associated with the anniversary payments to Tanya Domier. Certain of Ms. Domier’s anniversary payments were accelerated as part of the Transactions. |
| (b) | Represents non-cash compensation expense related to issuance of performance restricted stock units, restricted stock units and stock options under the Advantage Solutions Inc. 2020 Incentive Award Plan and shares of our Class A common stock pursuant to the Advantage Solutions Inc. 2020 Employee Stock Purchase Plan. |
| (c) | Represents adjustments to the estimated fair value of our contingent consideration liabilities related to our acquisitions, excluding the present value accretion recorded in interest expense, net, for the applicable periods. |
| (d) | Represents fees and costs associated with activities related to our acquisitions and restructuring activities related to our equity ownership, including transaction bonuses paid in connection with the Transactions, professional fees, due diligence, public company readiness and integration activities. |
| (e) | Represents fees and costs associated with various internal reorganization activities among our consolidated entities. |
| (f) | Represents legal settlements that are unusual or infrequent costs associated with our operating activities. |
| (g) | Represents the amortization of intangible assets recorded in connection with the acquisition of our business by Topco in 2014 and our other acquisitions. |
| (h) | Represents (i) costs related to implementation of strategies for workplace safety in response to COVID-19, including employee-relief fund, additional sick pay for front-line associates, medical benefit payments for furloughed associates, and personal protective equipment; and (ii) benefits received from government grants for COVID-19 relief. |
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| (i) | Represents $1.3 million and $0.7 million of costs associated with investigation and remediation activities related to the Take 5 Matter, primarily, professional fees and other related costs, respectively for the three months ended June 30, 2021 and 2020, respectively. |
| (j) | Represents the tax provision or benefit associated with the adjustments above, taking into account the Company’s applicable tax rates, after excluding adjustments related to items that do not have a related tax impact. |
| (k) | Represents additions to reflect our proportional share of Adjusted EBITDA related to our equity method investments and reductions to remove the Adjusted EBITDA related to the minority ownership percentage of the entities that we fully consolidate in our financial statements. |
A reconciliation of total debt to Net Debt is provided in the following table:
| (in millions) | June 30, 2021 | |||
| Current portion of long-term debt | $ | 13.3 | ||
| Long-term debt, net of current portion | 2,027.1 | |||
| Total Debt | 2,040.4 | |||
| Less: | ||||
| Debt issuance costs | (55.9 | ) | ||
| Cash and cash equivalents | 159.8 | |||
| Total Net Debt (a) | $ | 1,936.5 | ||
| (a) | We present Net Debt because we believe it provides useful information to management and investors regarding certain financial and business trends relating to the Company’s financial condition and to evaluate changes to the Company’s capital structure and credit quality assessment. |
Contacts:
Dan Riff
Chief Investor Relations & Strategy Officer
Advantage Solutions
Daniel.riff@advantagesolutions.net
Dan Morrison
Senior Vice President, Finance & Operations
Advantage Solutions
Kevin Doherty
Solebury Trout
Managing Director
Investorrelations@advantagesolutions.net
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ADVANTAGE SOLUTIONS, INC. Q2 2021 Earnings Presentation August 9, 2021 ADVANTAGE SOLUTIONS
DISCLAIMER Forward Looking Statements Certain statements in this presentation or accompanying commentary may be considered forward-looking statements with the meaning of federal securities laws. Forward-looking statements generally relate to future events or Advantage’s future financial or operating performance, In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expect”, “intend”, “will”, “would”, “estimate”, “anticipate”, “believe”, “predict”, “potential” or “continue”, or the negatives of these terms or variations of them or similar terminology. Such forward-looking statements are predictions, projections and other statements about future events that are based on current expectations and assumptions, and as a result, are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward looking statements. These forward-looking statements are based upon estimates and assumptions that, while considered reasonable by Advantage and its management are inherently uncertain. Factors that may cause actual results to differ materially from current expectations include, but are not limited to, the COVID-19 pandemic and the measures taken in response thereto; the availability, acceptance, administration and effectiveness of any COVID-19 vaccine; changes to labor laws or wage or job classification regulations, including minimum wage, or other market-driven wage changes; Advantage’s ability to continue to generate significant operating cash flow; client procurement strategies and consolidation of Advantage’s clients’ industries creating pressure on the nature and pricing of its services; consumer goods manufacturers and retailers reviewing and changing their sales, retail, marketing, and technology programs and relationships; Advantage’s ability to successfully develop and maintain relevant omni-channel services for our clients in an evolving industry and to otherwise adapt to significant technological change; Advantage’s ability to effectively remediate material weaknesses and maintain proper and effective internal controls in the future; potential and actual harms to Advantage’s business arising from the Take 5 Matter; Advantage’s substantial indebtedness and our ability to refinance at favorable rates; and other risks and uncertainties set forth in the section titled “Risk Factors” in the Annual Report on Form 10-K/A filed by Advantage with the Securities and Exchange Commission (the “SEC”) on May 17, 2021 and in its other filings made from time to time with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements. Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements, and Advantage assumes no obligation and does not intend to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise , except as required by law. Non-GAAP Financial Measure and Related Information This presentation includes certain financial measures not presented in accordance with generally accepted accounting principles (“GAAP”) including Adjusted EBITDA and Adjusted Net Income. These non-GAAP financial measures are not measures of financial performance in accordance with GAAP and may exclude items that are significant in understanding and assessing the Company’s financial results. Therefore, these measures are in addition to, and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP, and should not be considered in isolation or as an alternative to net income, cash flows from operations or other measures of profitability, liquidity or performance under GAAP. You should be aware that the Company’s presentation of these measures may not be comparable to similarly-titled measures used by other companies. The Company believes these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to the Company’s financial condition and results of operations. The Company believes that the use of Adjusted EBITDA and Adjusted Net Income provides an additional tool for investors to use in evaluating ongoing operating results and trends in and in comparing the Company’s financial measures with other similar companies, many of which present similar non-GAAP financial measures to investors. These non-GAAP financial measures are subject to inherent limitations as they reflect the exercise of judgments by management about which expense and income are excluded or included in determining these non-GAAP financial measures. Adjusted EBITDA means net income (loss) before (i) interest expense, net, (ii) (benefit from) provision for income taxes, (iii) depreciation, (iv) impairment of goodwill and indefinite-lived assets, (v) amortization of intangible assets, (vi) equity based compensation of Karman Topco L.P. and Advantage’s private equity sponsors’ management fee, (vii) change in fair value of warrant liability, (viii) stock-based compensation expense, (ix) fair value adjustments of contingent consideration related to acquisitions, (x) acquisition-related expenses, (xi) costs associated with COVID-19, net of benefits received, (xii) EBITDA for economic interests in investments, (xiii) restructuring expenses, (xiv) litigation expenses, (xv) (Recovery from) loss on Take 5, (xvi) costs associated with the Take 5 Matter and (xvii) other adjustments that management believes are helpful in evaluating our operating performance. Adjusted Net Income is a non-GAAP financial measure. Adjusted Net Income means net loss before (i) impairment of goodwill and indefinite-lived assets, (ii) amortization of intangible assets, (iii) equity based compensation of Karman Topco L.P. and Advantage’s private equity sponsors’ management fee, (iv) change in fair value of warrant liability, (v) fair value adjustments of contingent consideration related to acquisitions, (vi) acquisition-related expenses, (vii) costs associated with COVID-19, net of benefits received, (viii) EBITDA for economic interests in investments, (ix) restructuring expenses, (x) litigation expenses, (xi) (Recovery from) loss on Take 5, (xii) deferred financing fees, (xiii) costs associated with the Take 5 Matter, (xiv) other adjustments that management believes are helpful in evaluating our operating performance, and (xv) related tax adjustments. The Company has presented the financial data for the last twelve-month (“LTM”) period ended June 30, 2021 by adding the unaudited results of operations for the six-month period ended June 30, 2021 to its audited results of operations for the year ended December 31, 2020 and then subtracting the unaudited results of operations for the six-month period ended June 30, 2020. The financial data for the LTM period ended June 30, 2021 does not comply with GAAP. Due to rounding, numbers presented throughout this document may not add up precisely to the totals provided and percentages m ay not precisely reflect the absolute figures. 1
KEY MESSAGES • Delivered solid second quarter financial results as reopening continues • Raising our 2021 Adjusted EBITDA guidance to a range of $520 to $530 million, despite COVID uncertainty • Seeing steady recovery in businesses most impacted by COVID, with sampling events up ~4x y/y in June • Seeing elevated at-home consumer goods demand – volume and price • Seeing higher growth/higher margin services that scaled during COVID sustain their strength YTD • Accelerating acquisition and new business pipelines coming out of the pandemic • Investing to stand up tens of thousands of new associates in a still-constrained labor environment • Investing through the P&L in trade promotion optimization and sampling innovation 2
IMPROVING TRENDS IN Q2 RESULTS Note: Please see the appendix for a reconciliation of non-GAAP financial measures to most directly comparable GAAP measures. 3 Total Advantage Sales Segment Marketing Segment $119 $112 $122 Q2'19 Q2'20A Q2'21A Y/Y growth 8.9% $73 $90 $90 Q2'19 Q2'20A Q2'21A (0.6%) $45 $22 $32 Q2'19 Q2'20A Q2'21A 47.3% Y/Y growth Y/Y growth $ in millions. Adjusted EBITDA $922 $642 $850 Q2'19 Q2'20A Q2'21A $475 $460 $562 Q2'19 Q2'20A Q2'21A $447 $181 $288 Q2'19 Q2'20A Q2'21A 32.5% 22.0% 59.0% Y/Y growth Y/Y growth Y/Y growth $ in millions. Revenues
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2019 ACT 2020 ACT 2021 Act IMPROVING TRENDS IN Q2 RESULTS • Strengthening recovery in Marketing segment – In-store sampling recovering at key retailer partners – Click-and-collect sampling supporting consumer omnichannel shift • Continued strength in Sales segment – Still solid center-store / at-home volume trends – Concerted push for increased prices, surgical promotions - International segment rebounding nicely – Food service channel gaining ground – Navigating some mix headwinds • Continue to invest in recruiting, training and retention with automation and technology to improve experience and results 4 SAMPLING EVENT COUNT +22% Q/Q
PILLARS OF OUR STRATEGY FOR VALUE CREATION • Operate with excellence by serving existing clients well and delivering productivity through continuous improvement • Invest wisely in talent, technology and capability to support clients’ evolving needs through attractive opportunities for – Organic reinvestment – Disciplined tuck-in acquisitions • Nurture ‘evolutionary’ culture so that we remain flexible as we build the business to be – The partner of choice for brands and retailers as their needs change – Opportunistic when circumstances present us with pitches in our sweet-spot 5
FINANCIAL PERFORMANCE
FINANCIAL SUMMARY Note: Please see the appendix for a reconciliation of non-GAAP financial measures to most directly comparable GAAP measures. Totals may not add due to rounding. 7 Q3 Q4 Q1 Q2 ($ in millions) 2020A 2019A % 2020A 2019A % 2021A 2020A % 2021A 2020A % Total Advantage Revenues $784 $982 (20%) $850 $1,013 (16%) $791 $879 (10%) $850 $642 32% Adjusted EBITDA 136 145 (6%) 133 144 (8%) 111 106 5% 122 112 9% % margin 17.4% 14.8% 15.6% 14.2% 14.1% 12.1% 14.4% 17.5% Sales Segment Revenues $542 $503 8% $550 $520 6% $534 $508 5% $562 $460 22% Adjusted EBITDA 102 86 18% 90 87 2% 84 79 7% 90 90 (1%) % margin 18.8% 17.1% 16.3% 16.8% 15.7% 15.5% 15.9% 19.6% Marketing Segment Revenues $242 $478 (49%) $300 $493 (39%) $257 $372 (31%) $288 $181 59% Adjusted EBITDA 34 59 (42%) 43 57 (24%) 27 28 (2%) 32 22 47% % margin 14.2% 12.3% 14.3% 11.5% 10.7% 7.5% 11.3% 12.1%
• Q2 2021 Total Debt of $2.1 billion (1) – Leverage at around 3.9x net debt (1) to LTM June Adjusted EBITDA – No meaningful maturities for the next five+ years • Q2 2021 Debt Capitalization: • Equity capitalization @ June 30, 2021: – 318,496,390 Class A Common shares outstanding (5) – 18,578,325 Warrants @ $11.50 exercise – 2,546,461 Performance Restricted Stock Units (“PSUs”) (6) – 1,704,926 Restricted Stock Units (“RSUs”) – 261,234 Options CAPITALIZATION SUMMARY (1) Includes Other Debt of approximately $3M (2) Asset-backed Revolver rate subject to 0.50% LIBOR floor. See ABL Revolving Credit Agreement, dated October 28, 2020 for additional information. (3) First Lien Term Loan rate subject to 0.75% LIBOR floor. See First Lien Credit Agreement, dated October 28, 2020 for additional information. (4) First Lien Term Loan amortizes at 1% per annum, paid quarterly. Illustratively showing full $1,325 million obligation in 2027E maturity. (5) Includes 5 million performance shares issued as part of the Conyers Park II business combination which vested after satisfying a market performance test. (6) Represents the number of underlying shares that would be issued at Target performance levels. 8 Asset-backed Revolver 1L Term Loan Sr. Secured Notes $400 $1,325 $775 2020E … 2025E 2026E 2027E 2028E (4) Maturity Rate Outstanding Asset-backed Revolver ($400M) 2025 L+2.25% (2) -- First Lien Term Loan 2027 L+5.25% (3) 1,322 Senior Secured Notes 2028 6.50% 775 Total Funded Debt $2,097
OUTLOOK Raising FY2021 Outlook: • FY 2021 Adjusted EBITDA of $520-530 million • Continued investment in recruiting, training and retaining talent in a still-constrained labor market • Continued post-COVID normalization in 2H 2021 • Net Debt / Adjusted EBITDA trending downwards in 2021, toward 3.0x by end of 2022 • Planning to invest in promising medium-term opportunities through the P&L in FY 2021 9
THANK YOU
NON-GAAP RECONCILIATION FOR ADJUSTED EBITDA (1/3) 11 Consolidated Three Months Ended June 30, 2021 2020 (in thousands) Net income (loss) $ 5,754 $ (37,814) Add: Interest expense, net 37,189 51,521 Provision for income taxes 6,563 (13,704) Depreciation and amortization 62,674 58,748 Equity based compensation of Topco and Advantage Sponsors’ management fee (1) (1,642) 4,184 Change in fair value of warrant liability (7,059) — Stock based compensation expense (2) 8,988 — Fair value adjustments related to contingent consideration related to acquisitions (3) 3,598 4,128 Acquisition-related expenses (4) 2,797 4,861 EBITDA for economic interests in investments (6) (1,807) (887) Restructuring expenses (7) 6,934 46,565 Litigation expenses (8) — 2,500 Costs associated with COVID-19, net of benefits received (5) (3,328) (1,019) Recovery from Take 5 — (7,700) Costs associated with the Take 5 Matter (9) 1,310 661 Adjusted EBITDA $ 121,971 $ 112,044 Sales Segment Three Months Ended June 30, 2021 2020 (in thousands) Sales Segment Revenues $ 561,644 $ 460,239 Operating income $ 44,673 $ 11,021 Add: Depreciation and amortization 44,710 42,234 Equity based compensation of Topco and Advantage Sponsors’ management fee (1) (678) 3,538 Stock based compensation expense (2) 4,730 — Fair value adjustments related to contingent consideration related to acquisitions (3) (5,027) 4,128 Acquisition-related expenses (4) 2,280 4,081 EBITDA for economic interests in investments (6) (2,110) (1,338) Restructuring expenses (7) 1,176 23,326 Litigation expenses (8) — 2,500 Costs associated with COVID-19, net of benefits received (9) (231) 530 Sales Segment Adjusted EBITDA $ 89,523 $ 90,020 Marketing Segment Three Months Ended June 30, 2021 2020 (in thousands) Marketing Segment Revenues $ 288,310 $ 181,304 Operating (loss) income $ (2,226) $ (11,018) Add: Depreciation and amortization 17,964 16,514 Equity based compensation of Topco and Advantage Sponsors’ management fee (1) (964) 646 Stock based compensation expense (2) 4,258 — Fair value adjustments related to contingent consideration related to acquisitions (3) 8,625 — Acquisition-related expenses (4) 517 780 EBITDA for economic interests in investments (6) 303 451 Restructuring expenses (7) 5,758 23,239 Litigation expenses (8) — — Costs associated with COVID-19, net of benefits received (5) (3,097) (1,549) Recovery from Take 5 — (7,700) Costs associated with the Take 5 Matter (9) 1,310 661 Marketing Segment Adjusted EBITDA $ 32,448 $ 22,024
NON-GAAP RECONCILIATION FOR HISTORICAL PERIODS (2/3) 12 (in millions) March 31, 2021 Current portion of long-term debt $ 13.3 Long-term debt, net of current portion 2,027.1 Total Debt 2,040.4 Less: Debt issuance costs (55.9) Cash and cash equivalents 159.8 Total Net Debt (a) $ 1,936.5 Three Months Ended June 30, 2021 2020 (in thousands) Net income (loss) $ 5,754 $ (37,814) Less: Net loss attributable to noncontrolling interest (367) (410) Add: Equity based compensation of Topco and Advantage Sponsors’ management fee (1) (1,642) 4,184 Change in fair value of warrant liability (7,059) — Fair value adjustments related to contingent consideration related to acquisitions (3) 3,598 4,128 Acquisition-related expenses (4) 2,797 4,861 Restructuring expenses (7) 6,934 46,565 Litigation expenses (8) — 2,500 Amortization of intangible assets (7) 49,172 47,652 Costs associated with COVID-19, net of benefits received (5) (3,328) (1,019) Recovery from Take 5 — (7,700) Costs associated with the Take 5 Matter (9) 1,310 661 Tax adjustments related to non-GAAP adjustments (10) (16,506) (25,626) Adjusted Net Income $ 41,397 $ 38,802
NON-GAAP RECONCILIATION FOR HISTORICAL PERIODS (3/3) Note: Dollars in millions. Numerical figures included in this slide have been subject to rounding adjustments (1) Equity based compensation of Karman Topco L.P. and Advantage’s private equity sponsors’ management fee. (2) Represents non-cash compensation expense related to issuance of performance restricted stock units, restricted stock units, and stock options and ESPP with respect to our Class A common stock under the Advantage Solutions Inc. 2020 Incentive Award Plan. (3) Represents adjustments to the estimated fair value of our contingent consideration liabilities related to our acquisitions, excluding the present value accretion recorded in interest expense, net, for the applicable periods. (4) Represents fees and costs associated with activities related to our acquisitions and restructuring activities related to our equity ownership, including professional fees, due diligence, and integration activities. (5) Represents (a) costs related to implementation of strategies for workplace safety in response to COVID-19, including employee-relief fund, additional sick pay for front-line associates, medical benefit payments for furloughed associates, and personal protective equipment and (b) benefits received from government grants for COVID-19 relief. (6) Represents additions to reflect our proportional share of Adjusted EBITDA related to our equity method investments and reductions to remove the Adjusted EBITDA related to the minority ownership percentage of the entities that we fully consolidate in our financial statements. (7) One-time restructuring activities costs associated with non-recurring reorganization projects. (8) Represents legal settlements that are unusual or infrequent costs associated with our operating activities. (9) Represents costs associated with investigation and remediation activities related to the Take 5 Matter, primarily, professional fees and other related costs. (10) Represents the tax provision or benefit associated with the adjustments above, taking into account the Company’s applicable tax rates, after excluding adjustments related to items that do not have a related tax impact. (11) Net Debt represents the sum of current portion of long-term debt and long-term debt, less cash and cash equivalents and debt issuance costs. With respect to Net Debt, cash and cash equivalents are subtracted from the GAAP measure, total debt, because they could be used to reduce the debt obligations. 13