10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission File Number: 001-38990

 

Advantage Solutions Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

83-4629508

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

8001 Forsyth Blvd, Suite 1025

Clayton, Missouri 63105

(Address of principal executive offices)

 

(314) 655-9333

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Class A common stock, $0.0001 par value per share

 

ADV

 

Nasdaq Global Select Market

Warrants exercisable for one share of Class A common stock at an exercise price of $11.50 per share

 

ADVWW

 

Nasdaq Global Select Market

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No

f

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

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.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

As of May 9, 2024, the registrant had 322,179,519 shares of Class A common stock outstanding.

 

 

 

 


 

Advantage Solutions Inc.

 

TABLE OF CONTENTS

 

 

 

Page

PART I—FINANCIAL INFORMATION

 

3

 

 

 

Item 1. Financial Statements (Unaudited)

 

3

 

 

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

 

4

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

5

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

6

 

 

 

 

 

Notes to the Condensed Consolidated Financial Statements

 

7

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

44

 

 

 

Item 4. Controls and Procedures

 

44

 

 

 

PART II—OTHER INFORMATION

 

46

 

 

 

Item 1. Legal Proceedings

 

46

 

 

 

Item 1A. Risk Factors

 

46

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

46

 

 

 

Item 3. Defaults Upon Senior Securities

 

47

 

 

 

Item 4. Mine Safety Disclosures

 

47

 

 

 

Item 5. Other Information

 

47

 

 

 

Item 6. Exhibits

 

47

 

 

 

Signatures

 

48

 

 

2


 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ADVANTAGE SOLUTIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

March 31,

 

 

December 31,

 

(in thousands, except share data)

 

2024

 

 

2023

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

112,293

 

 

$

120,839

 

Restricted cash

 

 

15,712

 

 

 

16,363

 

Accounts receivable, net of allowance for expected credit losses from continuing operations of $16,795 and $32,725, respectively

 

 

649,420

 

 

 

685,201

 

Prepaid expenses and other current assets

 

 

93,845

 

 

 

117,649

 

Current assets of discontinued operations

 

 

60,858

 

 

 

71,982

 

Total current assets

 

 

932,128

 

 

 

1,012,034

 

Property and equipment, net

 

 

82,968

 

 

 

69,191

 

Goodwill

 

 

833,491

 

 

 

833,491

 

Other intangible assets, net

 

 

1,522,359

 

 

 

1,567,829

 

Investments in unconsolidated affiliates

 

 

220,445

 

 

 

211,393

 

Other assets

 

 

42,681

 

 

 

43,615

 

Other assets of discontinued operations

 

 

 

 

 

41,770

 

Total assets

 

$

3,634,072

 

 

$

3,779,323

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Current portion of long-term debt

 

$

13,275

 

 

$

13,274

 

Accounts payable

 

 

190,891

 

 

 

177,360

 

Accrued compensation and benefits

 

 

90,096

 

 

 

163,421

 

Other accrued expenses

 

 

147,121

 

 

 

144,446

 

Deferred revenues

 

 

23,392

 

 

 

27,428

 

Current liabilities of discontinued operations

 

 

12,153

 

 

 

15,368

 

Total current liabilities

 

 

476,928

 

 

 

541,297

 

Long-term debt, net of current portion

 

 

1,795,878

 

 

 

1,848,118

 

Deferred income tax liabilities

 

 

203,399

 

 

 

204,136

 

Other long-term liabilities

 

 

73,684

 

 

 

74,915

 

Other liabilities of discontinued operations

 

 

 

 

 

6,780

 

Total liabilities

 

 

2,549,889

 

 

 

2,675,246

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Common stock, $0.0001 par value, 3,290,000,000 shares authorized; 323,894,143 and 322,235,261 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

32

 

 

 

32

 

Additional paid in capital

 

 

3,447,038

 

 

 

3,449,261

 

Accumulated deficit

 

 

(2,319,957

)

 

 

(2,314,650

)

Loans to Karman Topco L.P.

 

 

(6,536

)

 

 

(6,387

)

Accumulated other comprehensive loss

 

 

(6,662

)

 

 

(3,945

)

Treasury stock, at cost; 6,600,075 and 3,600,075 shares as of March 31, 2024 and December 31, 2023, respectively

 

 

(30,638

)

 

 

(18,949

)

Total equity attributable to stockholders of Advantage Solutions Inc.

 

 

1,083,277

 

 

 

1,105,362

 

Nonredeemable noncontrolling interest

 

 

906

 

 

 

(1,285

)

Total stockholders’ equity

 

 

1,084,183

 

 

 

1,104,077

 

Total liabilities, redeemable noncontrolling interest, and stockholders’ equity

 

$

3,634,072

 

 

$

3,779,323

 

 

See Notes to the Condensed Consolidated Financial Statements.

 

3


 

ADVANTAGE SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

 

 

Three Months Ended March 31,

 

(in thousands, except share and per share data)

 

2024

 

 

2023

 

 

 

 

 

 

 

 

Revenues

 

$

879,003

 

 

$

944,382

 

Cost of revenues (exclusive of depreciation and amortization shown separately below)

 

 

763,872

 

 

 

826,855

 

Selling, general, and administrative expenses

 

 

89,664

 

 

 

56,289

 

Depreciation and amortization

 

 

51,540

 

 

 

54,494

 

Income from unconsolidated investments

 

 

689

 

 

 

 

Total operating expenses

 

 

905,765

 

 

 

937,638

 

Operating (loss) income from continuing operations

 

 

(26,762

)

 

 

6,744

 

Other expenses (income):

 

 

 

 

 

 

Change in fair value of warrant liability

 

 

287

 

 

 

(73

)

Interest expense, net

 

 

35,761

 

 

 

47,165

 

Total other expenses

 

 

36,048

 

 

 

47,092

 

Loss from continuing operations before income taxes

 

 

(62,810

)

 

 

(40,348

)

Benefit from income taxes for continuing operations

 

 

(13,703

)

 

 

(5,978

)

Net loss from continuing operations

 

 

(49,107

)

 

 

(34,370

)

Net income (loss) from discontinued operations, net of tax

 

 

45,992

 

 

 

(13,308

)

Net loss

 

 

(3,115

)

 

 

(47,678

)

Less: net income (loss) from discontinued operations attributable to noncontrolling interest

 

 

2,192

 

 

 

(91

)

Net loss attributable to stockholders of Advantage Solutions Inc.

 

$

(5,307

)

 

$

(47,587

)

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

Basic net loss per common share from continuing operations

 

$

(0.15

)

 

$

(0.11

)

Basic net income (loss) per common share from discontinued operations

 

$

0.14

 

 

$

(0.04

)

Basic net loss per common share attributable to stockholders of Advantage Solutions Inc.

 

$

(0.02

)

 

$

(0.15

)

 

 

 

 

 

 

 

Diluted net loss per share:

 

 

 

 

 

 

Diluted net loss per common share from continuing operations

 

$

(0.15

)

 

$

(0.11

)

Diluted net income (loss) per common share from discontinued operations

 

$

0.14

 

 

$

(0.04

)

Diluted net loss per common share attributable to stockholders of Advantage Solutions Inc.

 

$

(0.02

)

 

$

(0.15

)

 

 

 

 

 

 

 

Weighted-average number of common shares:

 

 

 

 

 

 

Basic

 

 

321,458,155

 

 

 

321,135,117

 

Diluted

 

 

321,458,155

 

 

 

321,135,117

 

 

 

 

 

 

 

 

Comprehensive (Loss) Income:

 

 

 

 

 

 

Net loss attributable to stockholders of Advantage Solutions Inc.

 

$

(5,307

)

 

$

(47,587

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(2,717

)

 

 

1,524

 

Total comprehensive loss attributable to stockholders of Advantage Solutions Inc.

 

$

(8,024

)

 

$

(46,063

)

 

 

 

 

 

 

 

See Notes to the Condensed Consolidated Financial Statements.

 

4


 

ADVANTAGE SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Advantage

 

 

 

 

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional

 

 

 

 

 

Loans

 

 

Other

 

 

Solutions Inc.

 

 

Nonredeemable

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paid-in

 

 

Accumulated

 

 

to

 

 

Comprehensive

 

 

Stockholders'

 

 

Noncontrolling

 

 

Stockholders'

 

(in thousands, except share data)

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Topco

 

 

Income (Loss)

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at January 1, 2024

 

322,235,261

 

 

$

32

 

 

 

3,600,075

 

 

$

(18,949

)

 

$

3,449,261

 

 

$

(2,314,650

)

 

$

(6,387

)

 

$

(3,945

)

 

$

1,105,362

 

 

$

(1,285

)

 

$

1,104,077

 

Comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,307

)

 

 

 

 

 

 

 

 

(5,307

)

 

 

2,192

 

 

 

(3,115

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,717

)

 

 

(2,717

)

 

 

(1

)

 

 

(2,718

)

Total comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,024

)

 

 

2,191

 

 

 

(5,833

)

Interest on loans to Karman Topco L.P.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(149

)

 

 

 

 

 

(149

)

 

 

 

 

 

(149

)

Purchase of treasury stock

 

(3,000,000

)

 

 

 

 

 

3,000,000

 

 

 

(11,689

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,689

)

 

 

 

 

 

(11,689

)

Equity-based compensation of Karman Topco L.P.

 

 

 

 

 

 

 

 

 

 

 

 

 

390

 

 

 

 

 

 

 

 

 

 

 

 

390

 

 

 

 

 

 

390

 

Shares issued under 2020 Employee Stock Purchase Plan

 

581,954

 

 

 

 

 

 

 

 

 

 

 

 

1,167

 

 

 

 

 

 

 

 

 

 

 

 

1,167

 

 

 

 

 

 

1,167

 

Payments for taxes related to net share settlement under 2020 Incentive Award Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,688

)

 

 

 

 

 

 

 

 

 

 

 

(9,688

)

 

 

 

 

 

(9,688

)

Shares issued under 2020 Incentive Award Plan

 

4,076,928

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

5,908

 

 

 

 

 

 

 

 

 

 

 

 

5,908

 

 

 

 

 

 

5,908

 

Balance at March 31, 2024

 

323,894,143

 

 

$

32

 

 

 

6,600,075

 

 

$

(30,638

)

 

$

3,447,038

 

 

$

(2,319,957

)

 

$

(6,536

)

 

$

(6,662

)

 

$

1,083,277

 

 

$

906

 

 

$

1,084,183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advantage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Loans

 

 

Other

 

 

Solutions Inc.

 

 

Nonredeemable

 

 

Total

 

 

Common Stock

 

 

Treasury Stock

 

 

Paid-in

 

 

Accumulated

 

 

to

 

 

Comprehensive

 

 

Stockholders'

 

 

Noncontrolling

 

 

Stockholders'

 

(in thousands, except share data)

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Topco

 

 

Income (Loss)

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at January 1, 2023

 

319,690,300

 

 

$

32

 

 

 

1,610,014

 

 

$

(12,567

)

 

$

3,408,836

 

 

$

(2,247,109

)

 

$

(6,363

)

 

$

(18,849

)

 

$

1,123,980

 

 

$

101,744

 

 

$

1,225,724

 

Comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(47,587

)

 

 

 

 

 

 

 

 

(47,587

)

 

 

(170

)

 

 

(47,757

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,524

 

 

 

1,524

 

 

 

1,813

 

 

 

3,337

 

Total comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(46,063

)

 

 

1,643

 

 

 

(44,420

)

Interest on loans to Karman Topco L.P.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

 

 

 

(6

)

 

 

 

 

 

(6

)

Equity-based compensation of Karman Topco L.P.

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,269

)

 

 

 

 

 

 

 

 

 

 

 

(2,269

)

 

 

 

 

 

(2,269

)

Shares issued under 2020 Employee Stock Purchase Plan

 

674,976

 

 

 

 

 

 

 

 

 

 

 

 

1,193

 

 

 

 

 

 

 

 

 

 

 

 

1,193

 

 

 

 

 

 

1,193

 

Payments for taxes related to net share settlement under 2020 Incentive Award Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,277

)

 

 

 

 

 

 

 

 

 

 

 

(1,277

)

 

 

 

 

 

(1,277

)

Shares issued under 2020 Incentive Award Plan

 

3,190,022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

11,078

 

 

 

 

 

 

 

 

 

 

 

 

11,078

 

 

 

 

 

 

11,078

 

Balance at March 31, 2023

 

323,555,298

 

 

$

32

 

 

 

1,610,014

 

 

$

(12,567

)

 

$

3,417,561

 

 

$

(2,294,696

)

 

$

(6,369

)

 

$

(17,325

)

 

$

1,086,636

 

 

$

103,387

 

 

$

1,190,023

 

 

See Notes to the Condensed Consolidated Financial Statements.

 

5


 

ADVANTAGE SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(3,115

)

 

$

(47,678

)

Net income (loss) from discontinued operations, net of tax

 

 

45,992

 

 

 

(13,308

)

Net loss from continuing operations

 

 

(49,107

)

 

 

(34,370

)

Adjustments to reconcile net loss to net cash provided by operating activities

 

 

 

 

 

 

Noncash interest income

 

 

(4,165

)

 

 

1,885

 

Amortization of deferred financing fees

 

 

1,800

 

 

 

2,109

 

Depreciation and amortization

 

 

51,540

 

 

 

54,494

 

Change in fair value of warrant liability

 

 

287

 

 

 

(73

)

Fair value adjustments related to contingent consideration

 

 

689

 

 

 

4,292

 

Deferred income taxes

 

 

(423

)

 

 

(16,448

)

Equity-based compensation of Karman Topco L.P.

 

 

390

 

 

 

(2,269

)

Stock-based compensation

 

 

7,220

 

 

 

11,210

 

Equity in earnings of unconsolidated affiliates

 

 

689

 

 

 

 

Distribution received from unconsolidated affiliates

 

 

1,282

 

 

 

588

 

Gain on repurchases of Senior Secured Notes

 

 

(2,669

)

 

 

 

Gain on disposal of property and equipment

 

 

469

 

 

 

 

Changes in operating assets and liabilities, net of effects from divestitures and purchases of businesses:

 

 

 

 

 

 

Accounts receivable, net

 

 

34,472

 

 

 

63,590

 

Prepaid expenses and other assets

 

 

19,743

 

 

 

22,290

 

Accounts payable

 

 

8,877

 

 

 

(45,410

)

Accrued compensation and benefits

 

 

(72,751

)

 

 

(53,086

)

Deferred revenues

 

 

(3,935

)

 

 

11,084

 

Other accrued expenses and other liabilities

 

 

(3,302

)

 

 

21,510

 

Net cash (used in) provided by operating activities from continuing operations

 

 

(8,894

)

 

 

41,396

 

Net cash provided by operating activities from discontinued operations

 

 

1,060

 

 

 

1,690

 

Net cash (used in) provided by operating activities

 

 

(7,834

)

 

 

43,086

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Purchase of investment in unconsolidated affiliates

 

 

(2,500

)

 

 

 

Purchase of property and equipment

 

 

(16,155

)

 

 

(5,988

)

Proceeds from divestitures

 

 

87,370

 

 

 

 

Net cash provided by (used in) investing activities from continuing operations

 

 

68,715

 

 

 

(5,988

)

Net cash used in investing activities from discontinued operations

 

 

(1,010

)

 

 

(1,290

)

Net cash provided by (used in) investing activities

 

 

67,705

 

 

 

(7,278

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Borrowings under lines of credit

 

 

 

 

 

56,843

 

Payments on lines of credit

 

 

 

 

 

(56,033

)

Principal payments on long-term debt

 

 

(3,318

)

 

 

(3,317

)

Repurchases of Senior Secured Notes and Term Loan Facility debt

 

 

(47,899

)

 

 

(1,725

)

Proceeds from issuance of common stock

 

 

1,167

 

 

 

1,193

 

Payments for taxes related to net share settlement under 2020 Incentive Award Plan

 

 

(3,292

)

 

 

(1,277

)

Contingent consideration payments

 

 

(1,851

)

 

 

(1,101

)

Holdback payments

 

 

 

 

 

(1,380

)

Purchase of treasury stock

 

 

(11,689

)

 

 

 

Net cash used in financing activities from continuing operations

 

 

(66,882

)

 

 

(6,797

)

Net cash used in financing activities from discontinued operations

 

 

(73

)

 

 

(81

)

Net cash used in financing activities

 

 

(66,955

)

 

 

(6,878

)

Net effect of foreign currency changes on cash from continuing operations

 

 

(2,136

)

 

 

1,311

 

Net effect of foreign currency changes on cash from discontinued operations

 

 

(310

)

 

 

(10

)

Net effect of foreign currency changes on cash

 

 

(2,446

)

 

 

1,301

 

Net change in cash, cash equivalents and restricted cash

 

 

(9,530

)

 

 

30,231

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

142,842

 

 

 

138,532

 

Cash, cash equivalents and restricted cash, end of period

 

 

133,312

 

 

 

168,763

 

Less: Cash, cash equivalents and restricted cash of discontinued operations

 

 

5,307

 

 

 

3,010

 

Cash, cash equivalents and restricted cash, end of period

 

$

128,005

 

 

$

165,753

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

(Gain) loss on divestitures from discontinued operations

 

$

(57,016

)

 

$

16,497

 

Purchase of property and equipment recorded in accounts payable and accrued expenses

 

$

5,238

 

 

$

2,105

 

See Notes to the Condensed Consolidated Financial Statements.

 

6


 

ADVANTAGE SOLUTIONS INC.

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Organization and Significant Accounting Policies

Advantage Solutions Inc. (the “Company”) is a provider of outsourced solutions to consumer goods companies and retailers. The Company’s Class A common stock is listed on the Nasdaq Global Select Market under the symbol “ADV” and warrants to purchase the Class A common stock at an exercise price of $11.50 per share are listed on the Nasdaq Global Select Market under the symbol “ADVWW”.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. The unaudited condensed consolidated financial statements do not include all of the information required by accounting principles generally accepted in the United States (“GAAP”). The Condensed Consolidated Balance Sheet at December 31, 2023 was derived from the audited Consolidated Balance Sheet at that date and does not include all the disclosures required by GAAP. In the opinion of management, all adjustments which are of a normal recurring nature and necessary for a fair statement of the results as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 have been reflected in the condensed consolidated financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2023 and the related footnotes thereto. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period.

As of March 31, 2024, the Company determined that certain businesses that have been disposed of and businesses classified as held for sale as of March 31, 2024 met the criteria for discontinued operations presentation. For all periods presented, the operating results associated with the businesses disposed of and classified as held for sale have been reclassified into net income (loss) from discontinued operations, net of income taxes and net income (loss) from discontinued operations attributable to non-controlling interest in the Consolidated Statements of Operations. The assets and liabilities associated with these businesses have been reflected as current and long-term assets and liabilities of discontinued operations in the Consolidated Balance Sheets, and the Cash flows from the Company’s discontinued operations are presented in the Consolidated Statements of Cash Flows for all periods presented Refer to Note 2—Held for Sale, Divestitures and Discontinued Operations for additional information on the Company’s assets and liabilities classified as held for sale and the Company's discontinued operations.

Certain prior period balances related to the Company's reportable segments and discontinued operations have been reclassified to conform to the current presentation in the financial statements and accompanying notes. The notes to the condensed consolidated financial statements are presented on a continuing operations basis unless otherwise noted. Refer to Note 8—Segments for additional information on the Company’s reportable segments. Refer to Note 2—Held for Sale, Divestitures and Discontinued Operations for additional information on the Company’s discontinued operations.

Reportable Segments

Effective January 1, 2024, Advantage Solutions Inc. revised its reportable segments to align with the Company's business strategy, and the manner in which the Chief Executive Officer, the Company's chief operating decision maker, assesses performance and makes decisions regarding the allocation of resources for the Company. The Company’s revised operating and reportable segments consist of Branded Services, Experiential Services, and Retailer Services. This change had no impact on the Company’s Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Comprehensive Loss, and Condensed Consolidated Statements of Stockholders' Equity. Prior period segment results have been reclassified to reflect the Company’s new reportable segments on a continuing operations basis. Refer to Note 8—Segments for additional information on the Company’s reportable segments.

 

 

7


 

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired in an acquisition. The Company tests for impairment of goodwill at the reporting unit level. The Company generally combines components that have similar economic characteristics, nature of services, types of clients, distribution methods and regulatory environment. In connection with the Company’s reorganization and the associated change in operating segments, the Company reassessed its reporting units and concluded that it has five reporting units (Branded Services, Branded Agencies, Experiential Services, Merchandising and Retailer Agencies). As a result, the Company performed the required impairment assessments directly before and immediately after the change in reporting units as of January 1, 2024. The assets and liabilities were reassigned to the applicable reporting units and allocated goodwill using the relative fair value approach. The estimated fair value of the underlying reporting units was determined based on a combination of the income and market approaches. The income approach utilizes estimates of discounted cash flows for the underlying business, which requires assumptions for growth rates, EBITDA margins, terminal growth rate, discount rate, and incremental net working capital, all of which require significant management judgment. The market approach applies market multiples derived from historical earnings data of selected guideline publicly traded companies that are first screened by industry group and then further narrowed on the reporting units' business descriptions, markets served, competitors, EBITDA margins and revenue size. The Company compared a weighted average of the output from the income and market approaches to compute the fair value of the reporting units. The assumptions in the income and market approach are based on significant inputs not observable in the market and thus represent Level three measurements within the fair value hierarchy.

In conjunction with the tests performed as of January 1, 2024, each of the fair values for the reporting units tested was in excess of its carrying amount. The fair values of the Branded Agencies and Experiential Services reporting units exceeded their respective carrying values by less than 20%. As of March 31, 2024, there were no indicators of goodwill impairment.

Indefinite Lived Intangible Assets

Intangible assets with indefinite useful lives are not amortized but tested annually, at the beginning of the fourth quarter, for impairment or more often if events occur or circumstances change that would create a triggering event. Prior to the segment change, the Company went to market with the Advantage Trade Name being specifically used and assessed for impairment in the Sales and Marketing businesses. As a result of the change in the Company's reportable segments effective as of January 1, 2024, the Company determined, based on the change in the planned use of the Advantage Trade Name intangible asset, that the Advantage Trade Name should be considered an entity-wide asset for reporting and impairment testing purposes. As of January 1, 2024, the Company concluded there was a triggering event for an interim impairment assessment due to the change in unit of account of the indefinite-lived intangibles. Based on the interim impairment assessment, the estimated fair values exceeded their carrying values, thus no impairment was recorded.

Revenue Recognition

The Company recognizes revenue when control of promised goods or services is transferred to the client in an amount that reflects the consideration that the Company expects to be entitled to in exchange for such goods or services. Substantially all of the Company’s contracts with clients involve the transfer of a service to the client, which represents a performance obligation that is satisfied over time because the client simultaneously receives and consumes the benefits of the services provided. In most cases, the contracts provide for a performance obligation that is comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). For these contracts, the Company allocates the ratable portion of the consideration based on the services provided in each period of service to such period.

Revenues related to the Branded Services segment are primarily recognized in the form of commissions, fee-for-service and cost-plus fees for providing headquarter relationship management, execution of merchandising strategies and omni-commerce marketing services.

Revenues within the Branded Services segment are further disaggregated between brokerage services, branded merchandising services, omni-commerce marketing services, and revenues related to the Company's international joint venture (prior to the deconsolidation during fiscal year 2023). Brokerage services revenues are primarily outsourced

 

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sales and services for branded consumer goods manufacturers at retailer headquarters, in-store and online. Branded merchandising services relate to merchandising in-store and online for branded consumer goods manufacturers. Omni-commerce marketing services primarily relate to digital and field marketing services.

Experiential Services segment revenues are primarily recognized in the form of fee-for-service and cost-plus fees for providing in-store, digital sampling and demonstrations, where the Company manages highly customized, large-scale sampling programs for leading brands and retailers.

Retailer Services segment revenues are primarily recognized in the form of commissions, fee-for-service and cost-plus fees for providing consulting services related to private brand development, the execution of merchandising strategies and marketing strategies within retailer locations, including retail media networks and analyzing shopper behavior.

Revenues within the Retailer Services segment are further disaggregated between advisory services, retailer merchandising services and agency services to retailers. Advisory services primarily consist of consulting services related to private brand development. Retailer merchandising services primarily relate to the execution of merchandising strategies. Agency services primarily consist of providing marketing strategies within retail locations.

Disaggregated revenues were as follows:

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Branded Services

 

 

 

 

 

 

Omni-commerce marketing services

 

$

112,360

 

 

$

112,927

 

Brokerage services

 

 

127,022

 

 

 

131,665

 

Branded merchandising services

 

 

105,147

 

 

 

106,863

 

International joint venture

 

 

 

 

 

93,407

 

Total Branded Services revenue

 

 

344,529

 

 

 

444,862

 

Experiential Services

 

 

 

 

 

 

Experiential services

 

 

307,351

 

 

 

257,167

 

Total Experiential Services revenue

 

 

307,351

 

 

 

257,167

 

Retailer Services

 

 

 

 

 

 

Agency services

 

 

16,824

 

 

 

14,232

 

Advisory services

 

 

38,712

 

 

 

39,067

 

Retailer merchandising services

 

 

171,587

 

 

 

189,054

 

Total Retailer Services revenue

 

 

227,123

 

 

 

242,353

 

Total revenues

 

$

879,003

 

 

$

944,382

 

Contract liabilities represent deferred revenues, which are cash payments that are received in advance of the Company’s satisfaction of the applicable obligation and are included in Deferred revenues in the Condensed Consolidated Balance Sheets. Deferred revenues are recognized as revenues when the related services are performed for the client. Revenues recognized during the three months ended March 31, 2024 included in Deferred revenues as of December 31, 2023 were $13.3 million. Revenues recognized during the three months ended March 31, 2023 included in Deferred revenues as of December 31, 2022 were $12.8 million.

Accounting Standards Recently Issued but Not Yet Adopted by the Company

In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires entities to expand their existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid. The standard is effective for the Company beginning in fiscal year 2025, with early adoption permitted. The new standard is expected to be applied prospectively, but retrospective application is permitted. The Company is currently evaluating the impact of ASU 2023-09 on the consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires entities to disclose incremental segment information on an annual and interim

 

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basis, including significant segment expenses and measures of profit or loss that are regularly provided to the chief operating decision maker (“CODM”). The standard is effective for the Company beginning in fiscal year 2024 and interim periods within fiscal year 2025, with early adoption permitted. The Company is currently evaluating the impact of ASU 2023-07 on the consolidated financial statements and related disclosures and expects to adopt the new standard using a retrospective approach.

In March 2024, the Securities Exchange Commission (“SEC”) adopted final climate-related disclosure rules under SEC Release Nos. 33-11275 and 34-99678, The Enhancement and Standardization of Climate-Related Disclosures for Investors. The rules require disclosure of governance, risk management and strategy related to material climate-related risks as well as disclosure