Advantage Solutions Inc. 10-K

Item 8. Financial Statements and Supplementary Data. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 56 Consolidated Balance Sheets 59 Consolidated Statements of Operations and Comprehensive (Loss) Income 60 Consolidated Statements of Stockholders’ Equity 61 Consolidated Statements of Cash Flows 62 Notes to Consolidated Financial Statements 63 Schedule I—Condensed Registrant Only Financial Information of Advantage Solutions Inc. as of December 31, 2022 and 2021, and for the years ended December 31, 2022, 2021, and 2020 104 55 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Advantage Solutions Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Advantage Solutions Inc. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive (loss) income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded two acquisitions completed in 2022 from its assessment of internal control over financial reporting as of December 31, 2022 because they were acquired by the Company in purchase business combinations during 2022. We have also excluded the two acquisitions completed in 2022 from our audit of internal control over financial reporting. The acquired entities are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting collectively represent 1% and 1%,respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the 56 company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Annual Goodwill Impairment Assessment – sales and marketing reporting units As described in Notes 1 and 3 to the consolidated financial statements, the Company’s consolidated goodwill balance was $887.9 million as of December 31, 2022. Management tests the Company’s goodwill for impairment at the beginning of the fourth quarter of a given fiscal year and whenever events or changes in circumstances indicate that the carrying value of a reporting unit may exceed its fair value. When it is determined that a quantitative impairment test should be performed, if the fair value of the reporting unit is less than its carrying amount, goodwill is impaired and the excess of the reporting unit’s carrying value over the fair value is recognized as an impairment loss. Based on the results of the Company's quantitative impairment test in the fourth quarter of 2022, the Company’s sales and marketing reporting units were written down to their respective fair values, resulting in zero excess fair value over their carrying values. The Company recognized $1,275.7 million and $91.8 million impairment charges in the sales and marketing reporting units, respectively, for the year ended December 31, 2022. Management utilizes a combination of income and market approaches to estimate the fair value of the Company’s reporting units. The income approach utilizes estimates of discounted cash flows of the reporting units, which requires assumptions for the reporting units’ revenue growth rates, EBITDA margins, terminal growth rates, discount rates, and incremental net working capital all of which require significant management judgment. The market approach applies market multiples derived from the historical earnings data of selected guideline publicly-traded companies to the Company’s reporting units’ businesses, which requires significant management judgment. The principal considerations for our determination that performing procedures relating to the annual goodwill impairment assessment of the sales and marketing reporting units is a critical audit matter are (i) the significant judgment by management when developing the fair value estimates of the sales and marketing reporting units; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, EBITDA margins, terminal growth rates, discount rates, incremental net working capital, and market multiples; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s annual goodwill impairment assessment, including controls over the valuation of the sales and marketing reporting units. These procedures also included, among others (i) testing management’s process for developing the fair value estimates of the sales and marketing reporting units; (ii) evaluating the appropriateness of the income and market valuation approaches, including utilizing a combination of the approaches to estimate the fair value of the sales and marketing reporting units; (iii) testing the completeness and accuracy of the underlying data used in the income and market valuation approaches; and (iv) evaluating the reasonableness of the significant assumptions used by management related to revenue growth rates, EBITDA margins, terminal growth rates, discount rates, incremental net working capital, and market multiples. Evaluating management’s significant assumptions related to revenue growth rates, EBITDA margins, and incremental net working capital involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the sales and marketing reporting units; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the income and market valuation approaches, including utilizing a combination of the approaches to estimate the fair value of the sales and marketing reporting units and (ii) the reasonableness of the significant assumptions related to terminal growth rates, discount rates, and market multiples. 57 Annual Indefinite-Lived Intangible Assets Impairment Assessment – sales and marketing trade names As described in Notes 1 and 3 to the consolidated financial statements, the Company’s indefinite-lived intangible assets balance was $695.0 million as of December 31, 2022. 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 evidence exists that triggering events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Management performed the annual indefinite-lived intangible asset impairment assessment as of October 1, 2022. Based on this assessment, management concluded the carrying value of the indefinite-lived trade names in the sales and marketing reporting units exceeded their estimated fair values. As a result, the Company recognized non-cash intangible asset impairment charges of $146.0 million and $59.0 million related to the Company's indefinite-lived sales and marketing trade names, respectively, during the year ended December 31, 2022. Management tests the Company’s indefinite-lived intangible assets for impairment using a relief from royalty method by comparing the estimated fair values of the indefinite-lived intangible assets with the carrying values. The estimates used in the determination of fair value are subjective in nature and involve the use of significant assumptions. These estimates and assumptions include revenue growth rates, terminal growth rates, discount rates, and royalty rates, all of which require significant management judgment. The principal considerations for our determination that performing procedures relating to the annual indefinite-lived intangible assets impairment assessment of the sales and marketing trade names is a critical audit matter are (i) the significant judgment by management when developing the fair value estimates of the sales and marketing trade names; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, discount rates, and royalty rates; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s annual indefinite-lived intangible assets impairment assessment, including controls over the valuation of the sales and marketing trade names. These procedures also included, among others (i) testing management’s process for developing the fair value estimates of the sales and marketing trade names; (ii) evaluating the appropriateness of the relief from royalty method; (iii) testing the completeness and accuracy of the underlying data used in the relief from royalty method; and (iv) evaluating the reasonableness of the significant assumptions used by management related to revenue growth rates, discount rates, and royalty rates. Evaluating management’s significant assumption related to revenue growth rates involved evaluating whether the assumption used by management was reasonable considering (i) the current and past performance of the sales and marketing brands; (ii) the consistency with external market and industry data; and (iii) whether this assumption was consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the relief from royalty method and (ii) the reasonableness of the significant assumptions related to discount rates and royalty rates. /s/ PricewaterhouseCoopers LLP Irvine, California March 1, 2023 We have served as the Company’s auditor since 2003. 58 ADVANTAGE SOLUTIONS INC. CONSOLIDATED BALANCE SHEETS December 31, (in thousands, except share data) 2022 2021 ASSETS Current assets Cash and cash equivalents $ 120,715 $ 164,622 Restricted cash 17,817 16,015 Accounts receivable, net of allowance for expected credit losses of $ 22,752 and $ 13,648 , respectively 869,000 797,677 Prepaid expenses and other current assets 149,476 126,000 Total current assets 1,157,008 1,104,314 Property and equipment, net 70,898 63,696 Goodwill 887,949 2,206,004 Other intangible assets, net 1,897,503 2,287,514 Investments in unconsolidated affiliates 129,491 125,158 Other assets 119,522 67,582 Total assets $ 4,262,371 $ 5,854,268 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Current portion of long-term debt $ 13,991 $ 14,397 Accounts payable 261,464 277,366 Accrued compensation and benefits 154,744 139,157 Other accrued expenses 133,173 164,133 Deferred revenues 37,329 50,467 Total current liabilities 600,701 645,520 Long-term debt, net of current portion 2,022,819 2,028,882 Deferred income tax liabilities 297,874 483,165 Warrant liability 953 22,189 Other long-term liabilities 110,554 92,218 Total liabilities 3,032,901 3,271,974 Commitments and contingencies (Note 18) Redeemable noncontrolling interest 3,746 1,893 Equity attributable to stockholders of Advantage Solutions Inc. Preferred stock, no par value, 10,000,000 shares authorized; none issued and outstanding as of December 31, 2022 and 2021, respectively — — Common stock, $ 0.0001 par value, 3,290,000,000 shares authorized; 319,690,300 and 316,963,552 shares issued and outstanding as of December 31, 2022 and 2021, respectively 32 32 Additional paid in capital 3,408,836 3,373,278 Accumulated deficit ( 2,247,109 ) ( 866,607 ) Loans to Karman Topco L.P. ( 6,363 ) ( 6,340 ) Accumulated other comprehensive loss ( 18,849 ) ( 4,479 ) Treasury stock, at cost; 1,610,014 shares as of December 31, 2022 and 2021 ( 12,567 ) ( 12,567 ) Total equity attributable to stockholders of Advantage Solutions Inc. 1,123,980 2,483,317 Nonredeemable noncontrolling interest 101,744 97,084 Total stockholders’ equity 1,225,724 2,580,401 Total liabilities, redeemable noncontrolling interest, and stockholders’ equity $ 4,262,371 $ 5,854,268 See Notes to the Consolidated Financial Statements. 59 ADVANTAGE SOLUTIONS INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME Year Ended December 31, (in thousands, except share and per share data) 2022 2021 2020 Revenues $ 4,049,742 $ 3,602,298 $ 3,155,671 Cost of revenues (exclusive of depreciation and amortization shown separately below) 3,493,183 2,964,123 2,551,485 Selling, general, and administrative expenses 190,367 168,086 306,282 Impairment of goodwill and indefinite-lived assets 1,572,523 — — Recovery from Take 5 — — ( 7,700 ) Depreciation and amortization 233,075 240,041 238,598 Total operating expenses 5,489,148 3,372,250 3,088,665 Operating (loss) income ( 1,439,406 ) 230,048 67,006 Other (income) expenses: Change in fair value of warrant liability ( 21,236 ) 955 13,363 Interest expense, net 104,459 137,927 234,044 Total other expenses 83,223 138,882 247,407 (Loss) income before income taxes ( 1,522,629 ) 91,166 ( 180,401 ) (Benefit from) provision for income taxes ( 145,337 ) 33,617 ( 5,331 ) Net (loss) income ( 1,377,292 ) 57,549 ( 175,070 ) Less: net income attributable to noncontrolling interest 3,210 3,055 736 Net (loss) income attributable to stockholders of Advantage Solutions Inc. ( 1,380,502 ) 54,494 ( 175,806 ) Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments ( 14,370 ) ( 5,153 ) 8,827 Total comprehensive (loss) income attributable to stockholders of Advantage Solutions Inc. $ ( 1,394,872 ) $ 49,341 $ ( 166,979 ) Net (loss) income per common share: Basic $ ( 4.33 ) $ 0.17 $ ( 0.79 ) Diluted $ ( 4.33 ) $ 0.17 $ ( 0.79 ) Weighted-average number of common shares: Basic 318,682,548 318,198,860 223,227,833 Diluted 318,682,548 321,004,756 223,227,833 See Notes to the Consolidated Financial Statements. 60 ADVANTAGE SOLUTIONS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Accumulated Advantage Common Stock Treasury Stock Additional Loans Other Solutions Inc. Nonredeemable Total Paid-in Accumulated to Comprehensive Stockholders' Noncontrolling Stockholders' Shares Amount Shares Amount Capital Deficit Topco Income (Loss) Equity Interests Equity (in thousands, except share data) Balance at January 1, 2020 203,750,000 $ 20 — $ — $ 2,337,471 $ ( 745,295 ) $ ( 6,244 ) $ ( 8,153 ) $ 1,577,799 $ 92,007 $ 1,669,806 Comprehensive income (loss) — Net (loss) income — — — — — ( 175,806 ) — — ( 175,806 ) 736 ( 175,070 ) Foreign currency translation adjustments — — — — — — — 8,827 8,827 4,211 13,038 Total comprehensive (loss) income ( 166,979 ) 4,947 ( 162,032 ) Recapitalization transaction, net of fees and deferred taxes 109,675,182 11 — — 921,302 — — — 921,313 — 921,313 Issuance of performance shares 5,000,000 1 — — ( 1 ) — — — — — — Interest on loans to Karman Topco L.P. — — — — — — ( 72 ) — ( 72 ) — ( 72 ) Equity-based compensation of Karman Topco L.P. — — — — 89,774 — — — 89,774 — 89,774 Balance at December 31, 2020 318,425,182 32 — — 3,348,546 ( 921,101 ) ( 6,316 ) 674 2,421,835 96,954 2,518,789 Comprehensive income (loss) Net income — — — — — 54,494 — — 54,494 2,964 57,458 Foreign currency translation adjustments — — — — — — — ( 5,153 ) ( 5,153 ) ( 3,069 ) ( 8,222 ) Total comprehensive income (loss) 49,341 ( 105 ) 49,236 Interest on loans to Karman Topco L.P. — — — — — — ( 24 ) — ( 24 ) — ( 24 ) Redemption of noncontrolling interest — — — — ( 444 ) — — — ( 444 ) 235 ( 209 ) Equity-based compensation of Karman Topco L.P. — — — — ( 15,030 ) — — — ( 15,030 ) — ( 15,030 ) Vesting of stock-based compensation awards 24,784 — — — — — — — — — — Purchase of treasury stock ( 1,610,014 ) — 1,610,014 ( 12,567 ) — — — — ( 12,567 ) — ( 12,567 ) Shares issued upon vesting of restricted stock units 41,424 — — — — — — — — — — Shares issued under 2020 Employee Stock Purchase Plan 77,172 — — — 736 — — — 736 — 736 Shares issued upon exercise of warrants 5,004 — — — 58 — — — 58 — 58 Stock-based compensation expense — — — — 39,412 — — — 39,412 — 39,412 Balance at December 31, 2021 316,963,552 32 1,610,014 ( 12,567 ) 3,373,278 ( 866,607 ) ( 6,340 ) ( 4,479 ) 2,483,317 97,084 2,580,401 Comprehensive income (loss) Net (loss) income — — — — — ( 1,380,502 ) — — ( 1,380,502 ) 2,995 ( 1,377,507 ) Foreign currency translation adjustments — — — — — — — ( 14,370 ) ( 14,370 ) ( 4,526 ) ( 18,896 ) Total comprehensive loss ( 1,394,872 ) ( 1,531 ) ( 1,396,403 ) Interest on loans to Karman Topco L.P. — — — — — — ( 23 ) — ( 23 ) — ( 23 ) Increase in noncontrolling interest — — — — — — — — — 6,191 6,191 Equity-based compensation of Karman Topco L.P. — — — — ( 6,934 ) — — — ( 6,934 ) — ( 6,934 ) Shares issued under 2020 Employee Stock Purchase Plan 713,213 — — — 3,320 — — — 3,320 — 3,320 Shares issued under 2020 Incentive Award Plan 2,013,535 — — — — — — — — — — Stock-based compensation expense — — — — 39,172 — — — 39,172 — 39,172 Balance at December 31, 2022 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 See Notes to Consolidated Financial Statements. 61 ADVANTAGE SOLUTIONS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (in thousands) 2022 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income $ ( 1,377,292 ) $ 57,549 $ ( 175,070 ) Adjustments to reconcile net (loss) income to net cash provided by operating activities Noncash interest (income) expense, net ( 43,785 ) ( 8,315 ) 755 Amortization of deferred financing fees 8,860 9,250 14,795 Impairment of goodwill and indefinite-lived assets 1,572,523 — — Extinguishment costs related to repayment and repricing of long-term debt — 1,569 11,275 Depreciation and amortization 233,075 240,041 238,598 Change in fair value of warrant liability ( 21,236 ) 955 13,363 Fair value adjustments related to contingent consideration 4,774 5,763 16,091 Deferred income taxes ( 190,754 ) ( 10,012 ) ( 14,357 ) Equity-based compensation of Karman Topco L.P. ( 6,934 ) ( 15,030 ) 89,774 Stock-based compensation 39,825 39,412 — Equity in earnings of unconsolidated affiliates ( 10,609 ) ( 10,298 ) ( 5,138 ) Distribution received from unconsolidated affiliates 1,826 1,465 968 Loss on disposal of property and equipment 644 7,162 21,091 Loss on divestiture 2,863 — — Changes in operating assets and liabilities, net of effects from purchases of businesses: Accounts receivable, net ( 75,688 ) ( 215,501 ) 116,105 Prepaid expenses and other assets ( 22,738 ) ( 14,000 ) 24,687 Accounts payable ( 17,635 ) 46,000 10,880 Accrued compensation and benefits 16,678 ( 2,363 ) 4,514 Deferred revenues ( 11,551 ) ( 2,694 ) 4,535 Other accrued expenses and other liabilities 18,412 ( 4,962 ) ( 27,136 ) Net cash provided by operating activities 121,258 125,991 345,730 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of businesses, net of cash acquired ( 74,206 ) ( 42,668 ) ( 68,057 ) Purchase of investment in unconsolidated affiliates ( 775 ) ( 2,000 ) — Purchase of property and equipment ( 40,455 ) ( 31,175 ) ( 30,946 ) Proceeds from divestiture 1,896 — — Net cash used in investing activities ( 113,540 ) ( 75,843 ) ( 99,003 ) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under lines of credit 326,090 61,629 213,927 Payments on lines of credit ( 326,968 ) ( 111,736 ) ( 164,828 ) Proceeds from accounts receivable securitization facility — — 120,000 Payment under accounts receivable securitization facility — — ( 120,000 ) Proceeds from government loans for COVID-19 relief — 2,975 4,822 Proceeds from new borrowings under the Senior Secured Credit Facilities and Notes — — 2,100,000 Principal payments on long-term debt ( 13,394 ) ( 13,309 ) ( 3,229,848 ) Proceeds from issuance of common stock 3,320 794 — Proceeds from recapitalization, net of fees — — 925,216 Contingent consideration payments ( 23,164 ) ( 9,814 ) ( 18,314 ) Holdback payments ( 11,057 ) ( 3,989 ) ( 2,736 ) Purchase of treasury stock — ( 12,567 ) — Financing fees paid ( 1,464 ) ( 74 ) ( 58,391 ) Contribution from noncontrolling interest 5,217 — — Redemption of noncontrolling interest ( 224 ) ( 209 ) — Net cash used in financing activities ( 41,644 ) ( 86,300 ) ( 230,152 ) Net effect of foreign currency changes on cash ( 8,179 ) ( 3,177 ) 4,366 Net change in cash, cash equivalents and restricted cash ( 42,105 ) ( 39,329 ) 20,941 Cash, cash equivalents and restricted cash, beginning of period 180,637 219,966 199,025 Cash, cash equivalents and restricted cash, end of period $ 138,532 $ 180,637 $ 219,966 SUPPLEMENTAL CASH FLOW INFORMATION Cash payments for interest $ 126,560 $ 137,467 $ 151,030 Cash received from interest rate derivatives $ 6,527 $ — $ — Cash payments for income taxes, net $ 45,729 $ 40,189 $ 18,263 Purchase of property and equipment recorded in accounts payable and accrued expenses $ 842 $ 759 $ 508 Deferred taxes related to transaction costs in connection with recapitalization $ — $ — $ 3,968 Fair value of liability for private placement warrants acquired at Closing $ — $ — $ 7,871 Note payable related to settlement of contingent consideration $ — $ — $ 4,048 See Notes to the Consolidated Financial Statements. 62 ADVANTAGE SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Significant Accounting Policies On July 25, 2014, Advantage Solutions Inc. (“ASI Intermediate”) acquired Advantage Sales & Marketing Inc. (the “2014 Topco Acquisition”). As a result of the 2014 Topco Acquisition, Advantage Sales & Marketing Inc. became a wholly owned indirect subsidiary of ASI Intermediate, of which Karman Topco L.P. (“Topco”) is the parent. The units of Topco are held by equity funds affiliated with or advised by CVC Capital Partners, Leonard Green & Partners, Juggernaut Capital Partners, Centerview Capital, L.P., Bain Capital and Yonghui Investment Limited, as well as by current and former members of the Company’s management. On September 7, 2020, ASI Intermediate entered into an agreement and plan of merger (as amended, modified, supplemented or waived, the “Merger Agreement”), with Conyers Park II Acquisition Corp., a Delaware corporation, now known as Advantage Solutions Inc. (“Conyers Park”), CP II Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Conyers Park (“Merger Sub”), and Topco. Conyers Park neither engaged in any operations nor generated any revenue. Based on Conyers Park’s business activities, it was a “shell company” as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) On October 28, 2020, Conyers Park consummated the merger pursuant to the Merger Agreement, by and among Merger Sub, ASI Intermediate (“Legacy Advantage”), and Topco. Pursuant to the Merger Agreement, Merger Sub was merged with and into Legacy Advantage with Legacy Advantage being the surviving company in the merger as a wholly owned subsidiary of Conyers Park (the “Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Transactions”). On October 28, 2020, and in connection with the closing of the Transactions (the “Closing”), Conyers Park changed its name to Advantage Solutions Inc. (the “Company” or “Advantage”) and Legacy Advantage changed its name to ASI Intermediate Corp. As of the Closing, Topco received 203,750,000 shares of the Company’s Class A common stock, par value $ 0.0001 per share (the “Common Stock”). Additionally, 5,000,000 shares of Class A common stock (“Performance Shares”) were issued to Topco at Closing, which were subject to vesting upon satisfaction of a market performance condition for any period of 20 trading days out of 30 consecutive trading days during the five-year period after the Closing, and Topco was not able to vote or sell such shares until vesting. Such Performance Shares vested on January 15, 2021 when the market performance condition was satisfied. In connection with the entry into the Merger Agreement, Conyers Park also entered into subscription agreements with certain investors (the “PIPE Investors”), pursuant to which, among other things, Conyers Park agreed to issue and sell in a private placement shares of Conyers Park Class A common stock for a purchase price of $ 10.00 per share. The PIPE Investors, other than the equity holders of Topco that participated in the PIPE Investment (the “ Advantage Sponsors”) and their affiliates, agreed to purchase an aggregate of 51,130,000 shares of Conyers Park Class A common stock. Certain of the Advantage Sponsors or their affiliates agreed to purchase an aggregate of 34,410,000 shares of Conyers Park Class A common stock, and, at their sole discretion. The shares of Conyers Park Class A common stock purchased by the PIPE Investors in the private placement are referred to as the “PIPE Shares” and the aggregate purchase price paid for the PIPE Shares is referred to as the “PIPE Investment.” At the Closing, the PIPE Investment was consummated, and 85,540,000 shares of Class A common stock were issued for aggregate gross proceeds of $ 855.4 million. Further, as part of the Closing, Conyers Park’s public shareholders redeemed 32,114,818 shares of Class A common stock at a redemption price of $ 10.06 per share, resulting in a $ 323.1 million payment from Conyers Park’s trust account proceeds and 12,885,182 shares of Class A common stock of Conyers Park existing public stockholders remain outstanding. Additionally, 11,250,000 shares of Conyers Park Class B common stock, par value $ 0.0001 per share, held by CP Sponsor and its directors, automatically converted into shares of the Company’s Park Class A common stock. As of the Closing, the PIPE Investors, Conyers Park existing public stockholders, and CP Sponsor collectively held 109,675,182 shares of Class A common stock. The Merger was accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Under this method of accounting, Conyers Park is treated as the “acquired” company for financial reporting purposes. This determination was primarily based on the current stockholder of Legacy Advantage, Topco, having a relative majority of the voting power of the combined entity, the operations of Legacy Advantage prior to the Merger comprising the only ongoing operations of the combined entity, and senior management of Legacy Advantage comprising the senior management of the combined entity. Accordingly, for accounting purposes, the financial statements of the combined entity represent a continuation of the financial statements of Legacy Advantage with the acquisition being treated as the equivalent of Legacy Advantage issuing stock for the net assets of Conyers Park, accompanied by a recapitalization. The net assets of Conyers Park are stated at historical cost, with no goodwill or other intangible assets recorded. The shares and net (loss) income per share available to holders of the Legacy Advantage’s common stock, prior to the Merger, have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement. 63 In connection with the Merger, ASI Intermediate received $ 93.9 million from Conyers Park’s trust account balance after the payments of $ 323.1 million redemptions by Conyers Park public stockholders and of $ 37.3 million transaction expenses incurred by Conyers Park, net of deferred taxes of $ 3.9 million. ASI Intermediate incurred direct and incremental costs of approximately $ 24.0 million related to the equity issuance, consisting primarily of investment banking, legal, accounting and other professional fees, which were recorded to additional paid-in capital as a reduction of proceeds. In addition, the Company incurred $ 39.8 million in transaction bonuses and $ 76.0 million in non-cash share-based compensation expense due to the accelerated vesting of Topco’s legacy share-based compensation plan. The transaction bonuses and share-based compensation are included in “Selling, general and administrative expenses” on the Company's Consolidated Statement of Operations and Comprehensive (Loss) Income for the year ended December 31, 2020. The Company also classified the 7,333,333 private placement warrants originally issued by Conyers Park to Conyers Park II Sponsor LLC in a private placement in connection with its initial public offering and assumed by the Company as a warrant liability with an initial fair value of the private placement warrants of $ 7.9 million with a decrease to additional paid-in capital in connection with the consummation of the Transactions on October 28, 2020. The Company is headquartered in Irvine, California and is a business solutions provider to consumer goods manufacturers and retailers. The Company’s common stock and public warrants (as further described in Note 12, Equity ) are listed on the Nasdaq Global Select market under the symbol “ADV” and warrants to purchase the 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 and Principles of Consolidation The consolidated financial statements include the accounts of the Company and its controlled subsidiaries and have been prepared in accordance with U.S. GAAP. The financial information set forth herein reflects: (a) the consolidated statements of operations and comprehensive (loss) income, stockholders’ equity, and cash flows for the years ended December 31, 2022, 2021, and 2020 and (b) the consolidated balance sheets as of December 31, 2022 and 2021. The consolidated financial statements for the years ended December 31, 2022, 2021, and 2020 reflect Topco’s basis in the assets and liabilities of the Company, as a result of the 2014 Topco Acquisition. The Company’s share in the earnings or losses for its investments in affiliates is reflected in “Investments in unconsolidated affiliates” and “Cost of revenues” in the Consolidated Balance Sheets and Consolidated Statements of Operations and Comprehensive (Loss) Income, respectively. All intercompany balances and transactions have been eliminated upon consolidation. Certain prior period balances have been reclassified to conform to the current Consolidated Statements of Cash Flows. These reclassifications had no impact on previously reported Consolidated Balance Sheets, Consolidated Statements of Operations Comprehensive (Loss) Income, and Consolidated Statements of Stockholder’s Equity. Use of Estimates The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates. The most significant estimates include revenues, workers’ compensation and employee medical claim reserves, fair value of contingent consideration, leases, income taxes, equity-based compensation, derivative instruments and fair value considerations in applying purchase accounting and assessing goodwill and other asset impairments. Foreign Currency The Company’s reporting currency is U.S. dollars as that is the currency of the primary economic environment in which the Company operates. The Company translates the assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates in effect at the end of each period. Revenues and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are included in “Accumulated other comprehensive (loss) income” in the Consolidated Statements of Stockholders’ Equity. Transactions in foreign currencies other than the entities’ functional currency are converted using the rate of exchange at the date of transaction. The gains or losses arising from the revaluation of foreign currency transactions to functional currency are included in “Selling, general, and administrative expenses” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. Unrealized foreign currency exchange gains and losses on certain intercompany transactions that are of a long-term investment nature ( i . e ., settlement is not planned or anticipated in the foreseeable future) are also recorded in accumulated other comprehensive (loss) income in stockholders’ equity. The Company reports gains and losses from foreign exchange rate changes related to intercompany receivables and payables that are of a long-term investment nature, in “Other comprehensive (loss) income” in the Consolidated Statements of Operations and Comprehensive (Loss) 64 Income. These items represented a net gain of $ 7.3 million, a gain of $ 1.0 million, and a loss of $ 2.1 million during the fiscal years ended December 31, 2022, 2021, and 2020, respectively. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and highly liquid investments having an original maturity of three months or less. The Company’s investments consist primarily of U.S. Treasury securities. The Company’s investments are carried at cost, which approximates fair value. The Company has restricted cash related to funds received from clients that will be disbursed at the direction of those clients. Corresponding liabilities have been recorded in “Other accrued expenses” in the Consolidated Balance Sheets. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company’s consolidated balance sheets that sum to the total of the same such amounts shown in the Company’s Consolidated Statements of Cash Flows: December 31, 2022 2021 2020 (in thousands) Cash and cash equivalents $ 120,715 $ 164,622 $ 204,301 Restricted cash 17,817 16,015 15,665 Total cash, cash equivalents and restricted cash $ 138,532 $ 180,637 $ 219,966 Accounts Receivable and Expected Credit Losses Accounts receivable consist of amounts due from clients for services provided in normal business activities and are recorded at invoiced amounts. The Company measures expected credit losses against certain billed receivables based upon the latest information regarding whether invoices are ultimately collectible. Assessing the collectability of client receivables requires management judgment. The Company determines its expected credit losses by specifically analyzing individual accounts receivable, historical bad debts, client creditworthiness, current economic conditions, and accounts receivable aging trends. Valuation reserves are periodically re-evaluated and adjusted as more information about the ultimate collectability of accounts receivable becomes available. Upon determination that a receivable is uncollectible, the receivable balance and any associated reserve is written off. Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of accounts receivable and cash balances at various financial institutions. The Company maintains cash balances in accounts at various financial institutions. At times such cash balances may exceed federally insured limits. The Company has not experienced any losses in such accounts. Derivatives The Company uses derivative financial instruments to hedge interest rate and foreign exchange risk. Derivative instruments, used to hedge interest rates, consist of interest rate swaps and interest rate caps. Interest rate swap contracts involve the exchange of floating rate interest payment obligations for fixed interest rate payments without the exchange of the underlying principal amounts. Interest rate cap contracts limit the floating interest rate exposure to the indicative rate in the agreement. Derivatives are initially recognized at fair value on the date a contract is entered into and are subsequently re-measured at fair value. The fair values of derivatives are measured using observable market prices or, where market prices are not available, by using discounted expected future cash flows at prevailing interest and exchange rates. The Company does not designate these derivatives as hedges for accounting purposes, and as a result, all changes in the fair value of derivatives used to hedge interest rates and foreign exchange risk are recorded in “Interest expense” and in “Selling, general, and administrative expenses” in the Consolidated Statements of Operations and Comprehensive (Loss) Income, respectively. These arrangements contain an element of risk in that the counterparties may be unable to meet the terms of such arrangements. In the event the counterparties are unable to fulfill their related obligations, the Company could potentially incur significant additional costs by replacing the positions at then current market rates. The Company manages its risk of exposure by limiting counterparties to those banks and institutions deemed appropriate by management. 65 Property and Equipment Property and equipment are stated at cost, and the balances are presented net of accumulated depreciation. Depreciation expense is calculated using the straight-line method over the estimated useful lives of the assets. The following table provides the range of estimated useful lives used for each asset type: Leasehold improvements 3 — 10 years Furniture and fixtures 3 — 7 years Computer hardware and other equipment 3 — 5 years Software 3 — 5 years The Company capitalizes certain direct costs associated with the development and purchase of internal-use software within property and equipment. Capitalized costs are amortized on a straight-line basis over the estimated useful lives of the software, generally not exceeding five years . Leasehold improvements are amortized on a straight-line basis over the shorter of their respective lease terms or their respective estimated useful lives. The cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the Consolidated Balance Sheets and the resulting gain or loss is reflected in the “Cost of revenues” and “Selling, general, administrative expenses” within the Consolidated Statements of Operations and Comprehensive (Loss) Income, depending on the nature of the assets. Expenditures for maintenance and repairs are expensed as incurred, whereas expenditures for improvements and replacements are capitalized. Equity Method Investments Investments in companies in which the Company exercises significant influence over the operating and financial policies of the investee and are not required to be consolidated are accounted for using the equity method. The Company’s proportionate share of the net income or loss of equity method investments is included in the results of operations and any dividends received reduce the carrying value of the investment. The excess of the cost of the Company’s investment over its proportionate share of the fair value of the net assets of the investee at the acquisition date is recognized as goodwill and included in the carrying amount of the investment. Goodwill in the equity method investments is not amortized. Gains and losses from changes in the Company’s ownership interests are recorded in results of operations until control is achieved. In instances in which a change in the Company’s ownership interest results in obtaining control, the existing carrying value of the investment is remeasured to the acquisition date fair value and any gain or loss is recognized in the Consolidated Statements of Operations and Comprehensive (Loss) Income. Distributions received from unconsolidated entities that represent returns on the investor’s investment are reported as cash flows from operating activities in the Company’s Consolidated Statements of Cash Flows. Cash distributions from unconsolidated entities that represent returns of the Company’s investment are reported as cash flows from investing activities. Business Combinations The Company accounts for business combinations using the acquisition method. Under this method, the purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill. Factors giving rise to goodwill generally include assembled workforce, geographic presence, expertise, and synergies that are anticipated as a result of the business combination, including enhanced product and service offerings. The Company determines the estimated fair values after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management. The Company adjusts the preliminary purchase price allocation, as necessary, during the measurement period of up to one year after the acquisition closing date as the Company obtains more information as to facts and circumstances existing at the acquisition date impacting asset valuations and liabilities assumed. Goodwill acquired in business combinations is assigned to the reporting unit expected to benefit from the combination as of the acquisition date. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred. 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 client, distribution methods and 66 regulatory environment. The Company has two reporting units, sales and marketing, which are also the Company’s operating segments. The Company tests its goodwill for impairment at the beginning of the fourth quarter of a given fiscal year and whenever events or changes in circumstances indicate that the carrying value of a reporting unit may exceed its fair value. The Company has the option to perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying value before performing a quantitative impairment test. To the extent that the qualitative approach indicates that it is more likely than not that the carrying amount is less than its fair value, the Company applies a quantitative approach. When it is determined that a quantitative impairment test should be performed, if the fair value of the reporting unit is less than its carrying amount, goodwill is impaired and the excess of the reporting unit’s carrying value over the fair value is recognized as an impairment loss; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. The Company’s annual goodwill impairment assessment for the year ended December 31, 2022 was performed as of October 1, 2022. The Company utilizes a combination of income and market approaches to estimate the fair value of its reporting units. The income approach utilizes estimates of discounted cash flows of the reporting units, which requires assumptions for the reporting units’ revenue growth rates, EBITDA margins, terminal growth rates, discount rates, and incremental net working capital, all of which require significant management judgment. The market approach applies market multiples derived from the historical earnings data of selected guideline publicly-traded companies to the Company’s reporting units’ businesses, which requires significant management judgment. The guideline companies are first screened by industry group and then further narrowed based on the reporting units’ business descriptions, markets served, competitors, EBITDA margins, and revenue size. Market multiples are then selected from within the range of these guideline companies’ multiples based on the subject reporting unit. The Company compares a weighted average of the output from the income and market approaches to the carrying value of each reporting unit. The Company also compares the aggregate estimated fair value of its reporting units to the estimated fair value of its total market capitalization. The assumptions in the income and market approach are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy (described in “Fair Value Measurements,” below). The Company based its fair value estimates on assumptions it believes to be reasonable but which are unpredictable and inherently uncertain. A change in these underlying assumptions would cause a change in the results of the tests and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of goodwill in the future. Additionally, if actual results are not consistent with the estimates and assumptions or if there are significant changes to the Company’s planned strategy, it may cause fair value to be less than the carrying amounts and result in an impairment of goodwill in the future. Based on the results of the Company’s quantitative impairment test in the fourth quarter of 2022, the Company’s sales and marketing reporting units were written down to their respective fair values, resulting in zero excess fair value over their carrying values. The Company recognized $ 1,275.7 million and $ 91.8 million impairment charges in the sales and marketing reporting units, respectively, for the year ended December 31, 2022, which has been reflected in “Impairment of goodwill and indefinite-lived assets” in the Company’s Consolidated Statements of Comprehensive (Loss) Income. While there was no single determinative event or factor, the consideration of the weight of evidence of several factors that culminated during the fourth quarter of 2022 led the Company to conclude that it was more likely than not that the fair value of the sales and marketing reporting units were below their carrying values. These factors included: (a) sustained decline in the Company’s share price; (b) challenges in the labor market and continued inflationary pressures; and (c) an increase to the discount rate as a result of the recent increases in interest rates which adversely affected the results of the quantitative impairment tests. The uncertainty and volatility in the economic environment in which the Company operates could have an impact on the Company's future growth and could result in future impairment charges. There is no assurance that actual future earnings, cash flows or other assumptions for the reporting units will not significantly decline from these projections. In connection with the Company's annual quantitative impairment test effective as of October 1, 2021 and 2020, the Company concluded that the goodwill was not impaired for the years ended December 31, 2021 and 2020. The fair value of the sales reporting unit exceeded its carrying value by 23.8 % for the year ended December 31, 2021 and exceeded its carrying value by 8.3 % for the year ended December 31, 2020. The fair value of the marketing reporting unit exceeded its carrying value by 41.6 % for the year ended December 31, 2021 and exceeded its carrying value by 37.3 % for the year ended December 31, 2020. Indefinite Lived Intangible Assets The Company’s indefinite-lived intangible assets are its sales and marketing trade names. 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 evidence exists that triggering events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. The Company has the option to perform a qualitative assessment of whether it is more likely than not that the indefinite-lived intangible asset’s fair value is less than its carrying value before performing a quantitative impairment test. The Company tests its indefinite-lived intangible 67 assets for impairment using a relief from royalty method by comparing the estimated fair values of the indefinite-lived intangible assets with the carrying values. The estimates used in the determination of fair value are subjective in nature and involve the use of significant assumptions. These estimates and assumptions include revenue growth rates, terminal growth rates, discount rates and royalty rates, all of which require significant management judgment. The assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The Company based its fair value estimates on assumptions it believes to be reasonable, but which are unpredictable and inherently uncertain. Actual future results may differ from the estimates. The annual indefinite-lived intangible asset impairment assessment was performed effective as of October 1, 2022. Based on this assessment, the Company concluded the carrying value of the indefinite-lived trade names in the sales and marketing reporting units exceeded their estimated fair values. As a result, the Company recognized non-cash intangible asset impairment charges of $ 146.0 million and $ 59.0 million related to the Company’s indefinite-lived sales and marketing trade names, respectively, during the year ended December 31, 2022, which has been reflected in “Impairment of goodwill and indefinite-lived assets” in the Company’s Consolidated Statements of Comprehensive (Loss) Income. While there was no single determinative event or factor, the factors that led to the impairment were the same circumstances outlined in the goodwill impairment discussion above. In connection with the Company's annual quantitative impairment test effective as of October 1, 2021, and 2020, the Company concluded that the indefinite-lived intangible assets were not impaired for the years ended December 31, 2021, and 2020. The fair value of the indefinite-lived intangible assets related to sales trade names exceeded its carrying value by 65.0 % for the year ended December 31, 2021 and exceeded its carrying value by 13.3 % for the year ended December 31, 2020. The fair value of the indefinite-lived intangible assets related to marketing trade names exceeded its carrying value by 33.3 % for the year ended December 31, 2021, and exceeded its carrying value by 8.4 % for the year ended December 31, 2020. Long-Lived Assets Long-lived assets to be held and used, including finite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans, or changes in anticipated future cash flows. If an impairment indicator is present, the Company evaluates recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If the assets are impaired, the impairment recognized is measured as the amount by which the carrying amount exceeds the fair value of the assets. Fair value is generally determined by estimates of discounted cash flows. The discount rate used in any estimate of discounted cash flows would be the rate required for a similar investment of like risk. During fiscal year 2022, the Company concluded the impact of challenges in the labor market and continued inflationary pressures were indicators that impairment may exist related to its client relationship intangible assets. As a result, the Company performed a recoverability test and determined that there was no impairment. No impairment related to the Company’s client relationship intangible assets was recorded during the years ended December 31, 2021, and 2020. No impairment related to the Company’s other long-lived assets were recorded during the years ended December 31, 2022, 2021, and 2020. Contingent Consideration Certain of the Company’s acquisition and sale agreements include contingent consideration arrangements, which are generally based on the achievement of future financial performance. If it is determined the contingent consideration arrangements are not compensatory, the fair values of these contingent consideration arrangements are included as part of the purchase price of the acquisitions or divestitures on their respective transaction dates. For each transaction, the Company estimates the fair value of contingent consideration payments as part of the initial purchase price and records the estimated fair value of contingent consideration related to proceeds from divestitures as an asset in “Other Assets” or related to purchases of businesses as a liability in “Other accrued expenses” or “Other long-term liabilities” in the Consolidated Balance Sheets. The Company reviews and assesses the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could differ materially from these initial estimates. Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in “Selling, general, and administrative expenses” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. The portion of the cash settlement up to the acquisition date fair value of the contingent consideration is classified as “Contingent consideration payments” in cash flows from financing activities, and amounts paid in excess of the acquisition date fair value are classified as “Other accrued expenses and other liabilities” in cash flows from operating activities in the Consolidated Statements of Cash Flows. 68 Leases The Company has obligations under various real estate leases, equipment leases, and software license agreements. The Company assesses whether these arrangements are or contain leases at lease inception. Classification of the leases between financing and operating leases is determined by assessing whether the lease transfers ownership of the asset to the Company, the lease grants an option for the Company to purchase the underlying asset, the lease term is for the majority of the remaining asset’s economic life, or if the minimum lease payments equal or substantially exceed all of the leased asset’s fair market value. As of December 31, 2022, the Company's finance leases were not material. See Note 8, Leases , for further information regarding the Company’s operating leases. Self-Insurance Liability The Company maintains a high deductible program for workers’ compensation claims. Losses and liabilities relating to workers’ compensation claims and employee medical claims are fully insured beyond the Company’s deductible limits. The Company’s estimated liabilities are not discounted and are based on information provided by third party administrators, combined with management’s judgment regarding a number of assumptions and factors, including the frequency and severity of claims, claims development history, case jurisdiction, applicable legislation and claims settlement practices. Revenue Recognition The Company recognizes revenue when control of promised goods or services are 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 consist of 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 sales segment are primarily recognized in the form of commissions, fee-for-service, or on a cost-plus basis for providing headquarter relationship management, analytics, insights and intelligence services, administrative services, retail services, retailer client relationships and in-store media programs, and digital technology solutions (which include business intelligence solutions, e-commerce services, and content services). Marketing segment revenues are primarily recognized in the form of fee-for-service (including retainer fees, fees charged to clients based on hours incurred, project-based fees, or fees for executing in-person consumer engagements or experiences, which engagements or experiences the Company refers to as “events”), commissions, or on a cost-plus basis for providing experiential marketing, shopper and consumer marketing services, private label development and digital, social, and media services. The Company disaggregates revenues from contracts with clients by reportable segment. Revenues within each segment are further disaggregated between brand-centric services and retail-centric services. Brand-centric services are centered on providing solutions to support manufacturers’ sales and marketing strategies. Retail-centric services are centered on providing solutions to retailers. Disaggregated revenues were as follows: Year Ended December 31, 2022 2021 2020 (in thousands) Sales brand-centric services $ 1,364,673 $ 1,292,639 $ 1,204,240 Sales retail-centric services 1,142,344 1,031,245 856,353 Total sales revenues 2,507,017 2,323,884 2,060,593 Marketing brand-centric services 559,218 554,447 429,200 Marketing retail-centric services 983,507 723,967 665,878 Total marketing revenues 1,542,725 1,278,414 1,095,078 Total revenues $ 4,049,742 $ 3,602,298 $ 3,155,671 The Company is party to certain client contracts that include variable consideration, whereby the ultimate consideration is contingent on future events such as the client’s sales to retailers, hours worked, event count, costs incurred, and performance incentive bonuses. For commission based service contracts, the consideration received from the client is variable because the Company earns an agreed upon percentage of the client’s sales to retailers, which is agreed upon on a manufacturer-by-manufacturer basis. Revenues are recognized for the commission earned during the applicable reporting period. The Company generally earns commission revenues from headquarter relationship management, analytics, insights and intelligence, e-commerce, administration, private label 69 development and retail services arrangements. As part of these arrangements, the Company provides a variety of services to consumer goods manufacturers in order to improve the manufacturer’s sales at retailers. This includes primarily outsourced sales, business development, category and space management, relationship management, and sales strategy services. In exchange for these services, the Company earns an agreed upon percentage of its client’s sales to retailers, which is agreed upon on a manufacturer-by-manufacturer basis. For service contracts whereby the client is charged a fee per hour incurred or fee per event completed, revenues are recognized over time as actual hours are incurred or as events are completed, respectively. For service contracts with a cost-plus arrangement, revenues are recognized on a gross basis over time for a given period based on the actual costs incurred plus a fixed mark-up fee that is negotiated on a client-by-client basis. For certain contracts with clients, the Company is entitled to additional fees upon meeting specific performance goals or thresholds, which are referred to as bonus revenues. Bonus revenues are estimated and are recognized as revenues as the related services are performed for the client. The variability of the consideration for the services transferred during a reporting period is typically resolved by the end of the reporting period. However, for certain client contracts, the Company is required to estimate the variable consideration for the services that have been transferred to the client during the reporting period. The Company typically estimates the variable consideration based on the expected value method. Estimates are based on historical experience and current facts known during the reporting period. The Company only recognizes revenues related to variable consideration if it is probable that a significant reversal of revenues recognized will not occur when the uncertainty associated with the variable consideration is resolved. When such probable threshold is not satisfied, the Company will constrain some or all of the variable consideration and the constrained variable consideration will not be recognized as revenues. The Company records an adjustment to revenue for differences between estimated revenues and the amounts ultimately invoiced to the client. Adjustments to revenue during the current period related to services transferred during prior periods were not material during the years ended December 31, 2022, 2021, and 2020. The Company has contracts that include fixed consideration such as a fee per project or a fixed monthly fee. For contracts with a fee per project, revenues are recognized over time using an input method such as hours worked that reasonably depicts the Company’s performance in transferring control of the services to the client. The Company determined that the input method represents a reasonable method to measure the satisfaction of the performance obligation to the client. For contracts with a fixed monthly fee, revenues are recognized using a time-based measure resulting in a straight-line revenue recognition. A time-based measure was determined to represent a reasonable method to measure the satisfaction of the performance obligation to the client because the Company has a stand ready obligation to make itself available to provide services upon the client’s request or the client receives the benefit from the Company’s services evenly over the contract period. The Company evaluates each client contract individually in accordance with the applicable accounting guidance to determine whether the Company acts as a principal (whereby the Company would present revenues on a gross basis), or as an agent (whereby the Company would present revenues on a net basis). While the Company primarily acts as a principal in its arrangements and reports revenues on a gross basis, the Company will occasionally act as an agent and accordingly presents revenues on a net basis. For example, for certain advertising arrangements, the Company’s clients purchase media content in advance, and the Company does not take on any risk of recovering its cost to acquire the media content. As a result, the Company determined it acts as the agent in these arrangements and records revenues and their related costs on a net basis. However, in cases where media content is not purchased in advance by its clients, the Company records such revenues and its related costs on a gross basis, as it bears the risk of recovering the costs to acquire the revenues related to such media content and it is responsible for fulfillment of the services thereunder. Substantially all of the Company’s contracts with its clients either have a contract term that is less than one year with options for renewal and/or can be canceled by either party upon 30 to 120 days’ notice. For the purpose of disclosing the transaction price allocated to remaining unsatisfied performance obligations or partially satisfied performance obligations, the Company elected policies to: (1) exclude contracts with a contract term of one year or less and (2) exclude contracts with variable consideration that is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation when that performance obligation qualifies as a series of remaining performance obligations. After applying these policy elections, the Company determined that it does not have a significant amount of fixed considerations allocated to remaining performance obligations for contracts with a contract term that exceeds one year. When the Company satisfies its performance obligation and recognizes revenues accordingly, the Company has a present and unconditional right to payment and records the receivable from clients in “Accounts receivable” in the Consolidated Balance Sheet. The Company’s general payment terms are short-term in duration and the Company does not adjust the promised amount of consideration for the effects of a significant financing component. 70 Contract liabilities represent deferred revenues which are cash payments that are received in advance of the Company’s satisfaction of the applicable obligation(s) and are included in “Deferred revenues” in the Consolidated Balance Sheets. Deferred revenues are recognized as revenues when the related services are performed for the client. Revenues recognized during the years ended December 31, 2022, 2021, and 2020, included $ 34.3 million, $ 37.2 million, and $ 33.2 million of deferred revenues from the respective prior years. Income Taxes The Company accounts for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carry- forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The income tax provision (benefit) is computed on the pre-tax income (loss) of the entities located within each taxing jurisdiction based on current tax law. A valuation allowance for deferred tax assets is recorded to the extent that the ultimate realization of the deferred tax assets is not considered more likely than not. The Company believes its deferred tax assets are more likely than not to be realized based on historical and projected future results, or a valuation allowance is established. Realization of the Company’s deferred tax assets is principally dependent upon its achievement of future taxable income, the estimation of which requires significant management judgment. These judgments regarding future profitability may change due to many factors, including future market conditions and the Company’s ability to successfully execute its business plans. These changes, if any, may require adjustments to deferred tax asset balances and deferred income tax expense. Uncertain Tax Positions The Company accounts for uncertain tax positions when it is more likely than not that the tax position will not be sustained on examination by the taxing authorities, based on the technical merits of the position. As of December 31, 2022, and 2021, the Company’s unrecognized tax benefits were $ 0.6 million and $ 0.6 million, respectively. The Company has not recorded any material uncertain tax positions for the year ended December 31, 2022. All the unrecognized tax benefits as of December 31, 2022 would be included in the effective tax rate if recognized in future periods. The Company is unaware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase within the next twelve months. The Company files tax returns in the United States, various states and foreign jurisdictions. With few exceptions, as of December 31, 2022, the Company is no longer subject to federal, state, or non-U.S. income tax examinations by tax authorities for years prior to 2018. The Company does not have any material ongoing income tax audits as of December 31, 2022. The Company has elected to classify interest and penalties as components of tax expense. These amounts were immaterial for the years ended December 31, 2022, 2021 and 2020. Equity-based Compensation The Company measures the cost of non-employee services received in exchange for an award of equity instruments based on the measurement date fair value consistent with the vesting of the awards and measuring the fair value of these units at the end of each measurement period. The cost is recognized over the requisite service period. The Company’s equity-based compensation is based on grant date fair value determined utilizing Backsolve Option Pricing Method (“OPM”) for the Topco Common Series C Units and a combination of the OPM and Monte Carlo valuation model for the Topco Common Series C-2 Units. Warrant Liability The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging . The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s Common Stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and on the date of issuance and remeasured to fair value at each balance sheet date thereafter. 71 For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance and remeasured to fair value at each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized in “Changes in fair value of warrant liability” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. Based on the availability of sufficient observable information, the Company determines the fair value of the liability classified private placement warrants by approximating the value with the price of the public warrants at the respective period end, which is inherently less subjective and judgmental given it is based on observable inputs. Other Comprehensive (Loss) Income The Company’s comprehensive (loss) income includes net income (loss) as well as foreign currency translation adjustments, net of tax. Unrealized foreign currency exchange gains and losses on certain intercompany transactions that are of a long-term investment nature (i.e., settlement is not planned or anticipated in the foreseeable future) are also recorded in accumulated other comprehensive (loss) income in stockholders’ equity. Fair Value Measurements The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: Level 1 — Quoted prices in active markets for identical assets or liabilities. Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 — Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. The valuation techniques used to measure the fair value of all other financial instruments, all of which have counterparties with high credit ratings, were valued based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data. Variable Interest Entities and Investments In accordance with the guidance for the consolidation of a variable interest entity (“VIE”), the Company analyzes its variable interests, including loans, leases, guarantees, and equity investments, to determine if the entity in which it has a variable interest is a VIE. The Company’s analysis includes both quantitative and qualitative considerations. The Company bases its quantitative analysis on the forecasted cash flows of the entity, and its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and financial agreements. The Company also uses its quantitative and qualitative analyses to determine if it is the primary beneficiary of the VIE, and if such determination is made, it includes the accounts of the VIE in its consolidated financial statements. Impact of the War in Ukraine The Company has a minority interest in a European company that has majority-ownership interests in local agencies in Russia. During the first quarter of 2022, the war in Ukraine resulted in the imposition of sanctions by the United States, the United Kingdom, and the European Union, that affected, and continues to affect, the cross-border operations of businesses operating in Russia. In addition, Russian regulators have imposed currency restrictions and regulations that created uncertainty regarding the Company's ability to recover its investment in operations in Russia, as well as the Company's ability to exercise control or influence over operations by the local agencies in Russia. As a result, the Company intends to use its influence to cause the European company to 72 dispose of its ownership interests in the local agencies in Russia. Accordingly, the Company recorded pretax charges of $ 2.8 million in the first quarter of 2022, primarily consisting of its proportionate share of the net investment in its Russian interest in “Selling, general, and administrative expenses” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. Recent Accounting Pronouncements Recent Accounting Standards Adopted by the Company On October 1, 2022, the Company early adopted Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 606): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if it had originated the contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements, if the acquiree prepared financial statements in accordance with U.S. GAAP. The guidance will be applied prospectively to business combinations occurring on or after the effective date of the amendment and did not have a material impact on the Company's consolidated financial statements. On April 1, 2022, the Company adopted ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . This guidance provides optional expedients and exceptions for U.S. GAAP to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate if certain criteria are met. The amendments in this update are effective for reporting periods that include or are subsequent to March 12, 2020 and must be applied prospectively to contract modifications and hedging relationships through December 31, 2022. The Company adopted the standard prospectively and determined that the adoption of this accounting guidance did not have a material impact on its consolidated financial statements. On January 1, 2022, the Company adopted ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP, simplifies the contract settlement assessment for equity classification, requires the use of the if-converted method for all convertible instruments in the diluted earnings per share calculation and expands disclosure requirements. The adoption of this accounting standard, under the full retrospective method, did not have a material impact on the Company's consolidated financial statements and use of the if-converted method did not have an impact on the Company's overall earnings per share calculation. On January 1, 2022, the Company adopted ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force) . The guidance clarifies certain aspects of the current guidance to promote consistency among reporting of an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity-classified after modification or exchange. The guidance is applied prospectively to all modifications or exchanges that occur on or after the date of adoption and the adoption of this accounting standard did not have a material impact on the Company’s consolidated financial statements. On January 1, 2022, the Company adopted ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance . This update requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The guidance is applied prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application. The adoption of this accounting standard did not have a material impact on the Company’s consolidated financial statements. All other new accounting pronouncements issued, but not yet effective or adopted have been deemed to be not relevant to the Company and, accordingly, are not expected to have a material impact once adopted. 73 2. Acquisitions 2022 Acquisitions The Company acquired four businesses during the year ended December 31, 2022. The acquisitions were accounted for under the acquisition method of accounting. As such, the purchase consideration for each acquired business was allocated to the acquired tangible and intangible assets and liabilities assumed based upon their respective fair values. Assets acquired and liabilities assumed in the business combinations were recorded on the Company’s financial statements as of the acquisition date based upon the estimated fair value at such date. The excess of the purchase consideration over the estimated fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. The allocation of the excess purchase price was based upon preliminary estimates and assumptions and is subject to post-close adjustments to working capital. Accordingly, the measurement period for such purchase price allocations will end when the information, or the facts and circumstances, becomes available, but will not exceed twelve months. The results of operations of each acquired business has been included in the Consolidated Statements of Operations and Comprehensive (Loss) Income since its respective date of acquisition. The aggregate purchase price for the acquisitions referenced above was $ 75.5 million, which includes $ 74.2 million paid in cash, $ 0.5 million recorded as contingent consideration liabilities, and $ 0.8 million recorded as holdback amounts. Contingent consideration payments are determined based on future financial performance and payment obligations (as defined in the applicable purchase agreement) and are recorded at fair value. The maximum potential payment outcome related to the acquisitions is $ 1.6 million. Holdback amounts are used to withhold a portion of the initial purchase price payment until certain post-closing conditions are satisfied and are typically settled within 24 months of the acquisition. The goodwill related to the acquisitions represented the value paid for the assembled workforce, geographic presence, and expertise. Of the resulting goodwill relating to these acquisitions, $ 1.0 million is deductible for tax purposes. The fair values of the identifiable assets and liabilities of the acquisitions less post-close adjustments related to working capital completed during the year ended December 31, 2022, as of the applicable acquisition dates, are as follows: (in thousands) Consideration: Cash $ 74,206 Holdback 810 Fair value of contingent consideration 510 Total consideration $ 75,526 Recognized amounts of identifiable assets acquired and liabilities assumed: Assets Accounts receivable $ 6,817 Other assets 3,446 Identifiable intangible assets 25,546 Total assets 35,809 Liabilities Accounts payable 7,363 Deferred tax liabilities and other 8,546 Total liabilities 15,909 Redeemable noncontrolling interest 1,987 Noncontrolling interest 974 Total identifiable net assets 16,939 Goodwill arising from acquisitions $ 58,587 74 The identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives. The fair value and estimated useful lives of the intangible assets acquired are as follows: (in thousands) Amount Weighted Average Useful Life Client relationships $ 24,413 6 years Trade names 1,133 5 years Total identifiable intangible assets $ 25,546 The operating results of the businesses acquired during the year ended December 31, 2022 contributed total revenues of $ 35.2 million during the year ended December 31, 2022. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of the operations upon acquisition. During the year ended December 31, 2022, the Company incurred $ 0.8 million in transaction costs related to the acquisitions described above. These costs have been included in “Selling, general, and administrative expenses” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. 2021 Acquisitions The Company acquired six businesses during the year ended December 31, 2021. The acquisitions were accounted for under the acquisition method of accounting. As such, the purchase consideration for each acquired business was allocated to the acquired tangible and intangible assets and liabilities assumed based upon their respective fair values. Assets acquired and liabilities assumed in the business combination were recorded on the Company’s financial statements as of the acquisition date based upon the estimated fair value at such date. The excess of the purchase consideration over the estimated fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. The allocation of the excess purchase price was based upon preliminary estimates and assumptions. The results of operations of each acquired business has been included in the Consolidated Statements of Operations and Comprehensive (Loss) Income since its respective date of acquisition. The aggregate purchase price for the acquisitions referenced above was $ 76.0 million, which includes $ 42.7 million paid in cash, $ 19.8 million recorded as contingent consideration liabilities, and $ 13.5 million recorded as holdback amounts. Contingent consideration payments are determined based on future financial performance and payment obligations (as defined in the applicable purchase agreement) and are recorded at fair value. The maximum potential payment outcome related to the acquisitions is $ 71.4 million. Holdback amounts are used to withhold a portion of the initial purchase price payment until certain post-closing conditions are satisfied and are typically settled within 24 months of the acquisition. The goodwill related to the acquisitions represented the value paid for the assembled workforce, geographic presence, and expertise. Of the resulting goodwill relating to these acquisitions, $ 14.3 million is deductible for tax purposes. 75 The fair values of the identifiable assets and liabilities of the acquisitions completed during the year ended December 31, 2021, at the respective acquisition dates, are as follows: (in thousands) Consideration Cash $ 42,668 Holdbacks 13,464 Fair value of contingent consideration 19,832 Total consideration $ 75,964 Recognized amounts of identifiable assets acquired and liabilities assumed: Assets Accounts receivable $ 12,677 Other assets 4,315 Property and equipment 998 Identifiable intangible assets 35,571 Total assets 53,561 Liabilities Total liabilities 21,206 Redeemable noncontrolling interest 1,793 Total identifiable net assets 30,562 Goodwill arising from acquisitions $ 45,402 The identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives. The fair value and estimated useful lives of the intangible assets acquired are as follows: (in thousands) Amount Weighted Average Useful Life Client relationships $ 27,387 7 years Trade names 5,084 5 years Developed technology 3,100 7 years Total identifiable intangible assets $ 35,571 The operating results of the businesses acquired during the year ended December 31, 2021 contributed total revenues of $ 75.9 million during the year ended December 31, 2021. The Company has determined that the presentation of net income from the date of acquisition is impracticable due to the integration of the operations upon acquisition. During the year ended December 31, 2021, the Company incurred $ 1.6 million, in transaction costs related to the acquisitions described above. These costs have been included in “Selling, general, and administrative expenses” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. 2020 Acquisitions The Company acquired five businesses during the year ended December 31, 2020, of which three were sales agencies and two marketing agencies in the United States. The acquisitions were accounted for under the acquisition method of accounting. As such, the purchase consideration for each acquired business was allocated to the acquired tangible and intangible assets and liabilities assumed based upon their respective fair values. Assets acquired and liabilities assumed in the business combination were recorded on the Company’s financial statements as of the acquisition date based upon the estimated fair value at such date. The excess of the purchase consideration over the estimated fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. The allocation of the excess purchase price was based upon estimates and assumptions. The results of operations of the business acquired by the Company have been included in the Consolidated Statements of Operations and Comprehensive (Loss) Income since the date of acquisition. The aggregate purchase price for the acquisitions referenced above was $ 88.1 million, which includes $ 68.0 million paid in cash, $ 14.8 million recorded as contingent consideration liabilities, and $ 5.3 million recorded as holdback amounts. Contingent consideration payments are determined based on future financial performance and payment obligations (as defined in the applicable purchase agreement) and recorded at fair value. The maximum potential payment outcome related to the acquisitions is $ 53.0 million. Holdback amounts are used to withhold a portion of the initial purchase price payment until certain post-closing conditions are 76 satisfied and are typically settled within 24 months of the acquisition. The goodwill related to the acquisitions represented the value paid for the assembled workforce, geographic presence, and expertise. Of the resulting goodwill relating to these acquisitions, $ 26.7 million is deductible for tax purposes. The fair values of the identifiable assets and liabilities of the acquisitions completed during the year ended December 31, 2020, at the respective acquisition dates, are as follows: (in thousands) Consideration Cash $ 68,057 Holdbacks 5,260 Fair value of contingent consideration 14,766 Total consideration $ 88,083 Recognized amounts of identifiable assets acquired and liabilities assumed: Assets Accounts receivable $ 3,542 Other assets 2,936 Property and equipment 321 Identifiable intangible assets 42,460 Total assets 49,259 Liabilities Total liabilities 4,569 Total identifiable net assets 44,690 Goodwill arising from acquisitions $ 43,393 The identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives. The fair value and estimated useful lives of the intangible assets acquired are as follows: (in thousands) Amount Weighted Average Useful Life Client relationships $ 42,460 6 years The operating results of the businesses acquired during the year ended December 31, 2020 contributed total revenues of $ 64.3 million in the year ended December 31, 2020. The Company has determined that the presentation of net income or loss from the date of acquisition is impracticable due to the integration of the operations upon acquisition. During the year ended December 31, 2020, the Company incurred $ 0.2 million in transaction costs related to the acquisitions described above. These costs have been included in “Selling, general, and administrative expenses” in the Consolidated Statement of Operations and Comprehensive (Loss) Income. Supplemental Pro Forma Information (unaudited) Supplemental information on an unaudited pro forma basis, presented as if the acquisitions executed during the period from January 1, 2020 to March 1, 2023 had been consummated as of the beginning of the comparative prior period, is as follows: Year Ended December 31, 2022 2021 2020 (in thousands) Revenues $ 4,065,242 $ 3,767,716 $ 3,339,221 Net (loss) income $ ( 1,377,436 ) $ 59,983 $ ( 168,954 ) The unaudited pro forma supplemental information is based on estimates and assumptions which the Company believes are reasonable and reflects the pro forma impact of additional amortization related to the fair value of acquired intangible assets, the pro forma impact of transaction costs which consisted of legal, advisory and due diligence fees and expenses, and the pro forma tax effect of the pro forma adjustments for the years ended December 31, 2022, 2021, and 2020. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisitions been consummated during the periods for which pro forma information is presented. 77 3. Goodwill and Intangible Assets Changes in goodwill for the years ended December 31, 2022 and 2021, are as follows: Sales Marketing Total (in thousands) Gross carrying amount as of January 1, 2021 $ 2,114,378 $ 700,961 $ 2,815,339 Accumulated impairment charge ( 652,000 ) — ( 652,000 ) Balance at January 1, 2021 1,462,378 700,961 2,163,339 Acquisitions 32,087 13,315 45,402 Measurement period adjustments 179 ( 1,043 ) ( 864 ) Foreign exchange translation effects ( 1,873 ) — ( 1,873 ) Balance at December 31, 2021 1,492,771 713,233 2,206,004 Acquisitions 5,732 52,855 58,587 Measurement period adjustments ( 392 ) — ( 392 ) Impairment charge ( 1,275,719 ) ( 91,804 ) ( 1,367,523 ) Foreign exchange translation effects ( 8,727 ) — ( 8,727 ) Balance at December 31, 2022 $ 213,665 $ 674,284 $ 887,949 During the fiscal year ended December 31, 2022, the Company recognized non-cash goodwill impairment charges of $ 1,275.7 million and $ 91.8 million related to the Company’s sales and marketing reporting units, respectively, as a result of the Company’s annual evaluation of goodwill impairment test (as further described in Note 1 above). Accumulated impairment losses to goodwill were $ 2,019.5 million and $ 652.0 million as of December 31, 2022 and 2021, respectively. The following tables set forth information for intangible assets: December 31, 2022 (amounts in thousands) Weighted Average Useful Life Gross Carrying Value Accumulated Amortization Accumulated Impairment Charges Net Carrying Value Finite-lived intangible assets: Client relationships 14 years $ 2,488,802 $ 1,338,381 $ — $ 1,150,421 Trade names 10 years 97,009 47,986 — 49,023 Developed technology 6 years 7,500 4,441 — 3,059 Total finite-lived intangible assets (1) 2,593,311 1,390,808 — 1,202,503 Indefinite-lived intangible assets: Trade names 1,480,000 — 785,000 695,000 Total other intangible assets $ 4,073,311 $ 1,390,808 $ 785,000 $ 1,897,503 December 31, 2021 (amounts in thousands) Weighted Average Useful Life Gross Carrying Value Accumulated Amortization Accumulated Impairment Charges Net Carrying Value Finite-lived intangible assets: Client relationships 14 years $ 2,480,167 $ 1,158,732 $ — $ 1,321,435 Trade names 8 years 138,206 78,355 — 59,851 Developed technology 5 years 13,260 8,206 — 5,054 Covenant not to compete 5 years 6,100 4,926 — 1,174 Total finite-lived intangible assets (1) 2,637,733 1,250,219 — 1,387,514 Indefinite-lived intangible assets: Trade names 1,480,000 — 580,000 900,000 Total other intangible assets $ 4,117,733 $ 1,250,219 $ 580,000 $ 2,287,514 78 (1) Intangible assets, along with the related accumulated amortization, are removed from the table above at the end of the fiscal year they become fully amortized. As of December 31, 2022, estimated future amortization expenses of the Company’s existing intangible assets are as follows: (in thousands) 2023 $ 197,995 2024 196,626 2025 190,571 2026 186,582 2027 182,030 Thereafter 248,699 Total amortization expense $ 1,202,503 The Company records all intangible assets at their respective fair values and assesses the estimated useful lives of the assets at the time of acquisition. Client relationships were valued using the multi-period excess earnings method under the income approach. The values of client relationships are generally regarded as the estimated economic benefit derived from the incremental revenues and related cash flow as a direct result of the client relationships in place versus having to replicate them. Further, the Company evaluated the legal, regulatory, contractual, competitive, economic or other factors in determining the useful life. Trade names were valued using the relief-from-royalty method under the income approach. This method relies on the premise that, in lieu of ownership, a company would be willing to pay a royalty to obtain access to the use and benefits of the trade names. The Company has considered its sales and marketing trade names related to the 2014 Topco Acquisition to be indefinite, as there is no foreseeable limit on the period of time over which such trade names are expected to contribute to the cash flows of the reporting entity. Further, the Company evaluated legal, regulatory, contractual, competitive, economic and other factors in determining the useful life. In connection with the acquisitions during the years ended December 31, 2022 and 2021, the Company recorded intangible assets of $ 25.6 million and $ 35.6 million, respectively. Amortization expenses included in the Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended December 31, 2022, 2021 and 2020 were $ 200.8 million, $ 198.9 million, and $ 191.2 million, respectively. During the year ended December 31, 2022, the Company recognized non-cash intangible asset impairment charges of $ 146.0 million and $ 59.0 million related to the Company's indefinite-lived sales and marketing trade names, respectively, in connection with the Company’s annual intangible asset impairment test on October 1, 2022 (as further described in Note 1 above). No impairment related to the Company’s intangible assets was recorded for the years ended December 31, 2021, and 2020. During fiscal year 2022, the Company concluded the impact of challenges in the labor market and continued inflationary pressures was an indicator that impairment may exist related to its client relationship intangible assets and as a result, the Company performed a recoverability test and determined that there was no impairment. No impairment related to the Company’s client relationship intangible assets was recorded during the years ended December 31, 2021, and 2020. 4. Prepaid Expenses and Other Assets Prepaid expenses and other current assets consist of the following: December 31, (in thousands) 2022 2021 Inventory and supplies $ 78,273 $ 70,704 Prepaid expenses 46,547 41,165 Prepaid income taxes 7,385 4,968 Other receivables 6,604 5,747 Assets held for sale 4,959 — Other current assets 5,708 3,416 Total prepaid expenses and other current assets $ 149,476 $ 126,000 79 Other assets consist of the following: December 31, (in thousands) 2022 2021 Operating lease right-of-use assets $ 61,744 $ 47,478 Interest rate caps 47,493 10,164 Deposits 4,596 4,858 Workers' compensation receivable 3,525 4,008 Other long-term assets 2,164 1,065 Total other assets $ 119,522 $ 67,582 Inventory is stated at the lower of cost and net realizable value. Costs are determined on the first-in, first-out basis. The Company records write-downs of inventories which are obsolete or in excess of anticipated demand or net realizable value based on a consideration of marketability, historical sales and demand forecasts which consider the assumptions about future demand and market conditions. 5. Property and Equipment Property and equipment consist of the following: December 31 (in thousands) 2022 2021 Software $ 129,329 $ 115,093 Computer hardware 55,736 58,762 Leasehold improvements 20,860 17,286 Furniture, fixtures, and other 10,473 10,092 Total property and equipment 216,398 201,233 Less: accumulated depreciation ( 145,500 ) ( 137,537 ) Total property and equipment, net $ 70,898 $ 63,696 Depreciation expense was $ 32.2 million, $ 41.1 million, and $ 45.1 million related to property and equipment for the years ended December 31, 2022, 2021, and 2020, respectively. The Company commenced a plan to strategically exit certain offices during the year ended December 31, 2020. In enacting the plan, the Company recognized $ 21.1 million of loss primarily related to disposal of property and equipment from abandoning several office leases for the year ended December 31, 2020. 80 6. Other Liabilities Other accrued expenses consist of the following: December 31, 2022 2021 (in thousands) Interest rate caps and accrued interest payable $ 33,168 $ 19,922 Operating lease liability 21,584 20,415 Client deposits 16,521 13,623 General liability insurance reserve 12,937 7,131 Rebates due to retailers 12,693 17,396 Employee medical self-insurance reserves 10,007 8,161 Client refunds related to the Take 5 Matter 9,416 9,424 Taxes 7,286 5,357 Holdbacks 2,247 15,564 Contingent consideration 1,674 41,522 Other accrued expenses 5,640 5,618 Total other accrued expenses $ 133,173 $ 164,133 Other long-term liabilities consist of the following: December 31, 2022 2021 (in thousands) Operating lease liability $ 56,371 $ 40,444 Workers' compensation 32,377 31,401 Contingent consideration 18,660 16,844 Other long-term liabilities 3,146 3,529 Total other long-term liabilities $ 110,554 $ 92,218 Under the workers’ compensation programs, the estimated liability for claims incurred but unpaid at December 31, 2022 and 2021 were $ 57.2 million and $ 57.7 million, respectively. These amounts include reported claims as well as claims incurred but not reported. As of December 31, 2022, $ 24.8 million and $ 32.4 million of this liability was included in the “Accrued compensation and benefits” and “Other long-term liabilities” in the Consolidated Balance Sheets, respectively. As of December 31, 2021, $ 26.3 million and $ 31.4 million of this liability was included in the “Accrued compensation and benefits” and “Other long-term liabilities” in the Consolidated Balance Sheets, respectively. In connection with its deductible limits, the Company has standby letters-of-credit as of December 31, 2022 and 2021 in the amount of $ 44.5 million and $ 54.8 million, respectively, and $ 16.0 million and $ 10.0 million surety bond as of such years supporting the estimated unpaid claim liabilities. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) (as further described in Note 16, Income Taxes ) provides for deferred payment of the employer portion of social security taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. The Company began deferring payment of the employer share of the security taxes in April 2020. The Company repaid $ 23.8 million and $ 24.0 million during the years ended December 31, 2022 and 2021, respectively. Contingent Consideration Liabilities Each reporting period, the Company measures the fair value of its contingent liabilities by evaluating the significant unobservable inputs and probability weightings using Monte Carlo simulations. Any resulting decreases or increases in the fair value result in a corresponding gain or loss reported in “Selling, general, and administrative expenses” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. The Company has reassessed the fair value of contingent consideration based on the achievement of performance targets as defined in the respective purchase agreements and it resulted in a fair value adjustment of a $ 4.8 million loss that was included in “Selling, general, and administrative expenses” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. As of December 31, 2022, the maximum potential payment outcomes were $ 112.2 million. 81 The following table summarizes the changes in the carrying value of the contingent consideration liabilities: December 31, (in thousands) 2022 2021 Beginning of the period $ 58,366 $ 45,901 Fair value of acquisitions 510 19,832 Changes in fair value 4,774 5,763 Payments ( 42,711 ) ( 11,949 ) Measurement period adjustments — ( 1,181 ) Foreign exchange translation effects ( 605 ) — End of the period $ 20,334 $ 58,366 7. Debt December 31, (in thousands) 2022 2021 Term Loan Facility $ 1,298,500 $ 1,311,750 Notes 775,000 775,000 Government loans for COVID-19 relief 4,480 5,212 Other 1,207 1,113 Total long-term debt 2,079,187 2,093,075 Less: current portion 13,991 14,397 Less: debt issuance costs 42,377 49,796 Long-term debt, net of current portion $ 2,022,819 $ 2,028,882 Senior Secured Credit Facilities In connection with the consummation of the Transactions, Advantage Sales & Marketing Inc., an indirect wholly-owned subsidiary of the Company (the “Borrower”), entered into (i) a senior secured asset-based revolving credit facility in an aggregate principal amount of up to $ 400.0 million, subject to borrowing base capacity (as amended and/or restated from time to time, the “Revolving Credit Facility”) and (ii) a secured first lien term loan credit facility in an aggregate principal amount of $ 1.325 billion (as amended and/or/restated from time to time, the “Term Loan Facility” and together with the Revolving Credit Facility, the “Senior Secured Credit Facilities”). Revolving Credit Facility The Revolving Credit Facility provides for revolving loans and letters of credit in an aggregate amount of up to $ 500.0 million, subject to borrowing base capacity. Letters of credit are limited to the lesser of (a) $ 150.0 million and (b) the aggregate unused amount of commitments under the Revolving Credit Facility then in effect. Loans under the Revolving Credit Facility may be denominated in either U.S. dollars or Canadian dollars. Bank of America, N.A. ( “Bank of America” ) , will act as administrative agent and ABL Collateral Agent. The Revolving Credit Facility matures five years after the date the Company enters into the Company's Revolving Credit Facility. The Borrower may use borrowings under the Revolving Credit Facility to fund working capital and for other general corporate purposes, including permitted acquisitions and other investments. Borrowings under the Revolving Credit Facility are limited by borrowing base calculations based on the sum of specified percentages of eligible accounts receivable plus specified percentages of qualified cash, minus the amount of any applicable reserves. Borrowings will bear interest at a floating rate, which can be either an adjusted Eurodollar rate plus an applicable margin or, at the Borrower’s option, a base rate plus an applicable margin. The applicable margins for the Revolving Credit Facility are 2.00 %, 2.25 % or 2.50 %, with respect to Eurodollar rate borrowings and 1.00 %, 1.25 % or 1.50 %, with respect to base rate borrowings, in each case depending on average excess availability under the Revolving Credit Facility. The Borrower’s ability to draw under the Revolving Credit Facility or issue letters of credit thereunder will be conditioned upon, among other things, the Borrower’s delivery of prior written notice of a borrowing or issuance, as applicable, the Borrower’s ability to reaffirm the representations and warranties contained in the credit agreement governing the Revolving Credit Facility and the absence of any default or event of default thereunder. The Borrower’s obligations under the Revolving Credit Facility are guaranteed by Karman Intermediate Corp. (“Holdings”) and all of the Borrower’s direct and indirect wholly owned material U.S. subsidiaries (subject to certain permitted exceptions) and 82 Canadian subsidiaries (subject to certain permitted exceptions, including exceptions based on immateriality thresholders of aggregate assets and revenues of Canadian subsidiaries) (the “Guarantors”). The Revolving Credit Facility is secured by a lien on substantially all of Holdings’, the Borrower’s and the Guarantors’ assets (subject to certain permitted exceptions). The Revolving Credit Facility has a first-priority lien on the current asset collateral and a second-priority lien on security interests in the fixed asset collateral (second in priority to the liens securing the Notes and the Term Loan Facility discussed below), in each case, subject to other permitted liens. The Revolving Credit Facility has the following fees: (i) an unused line fee of 0.375 % or 0.250 % per annum of the unused portion of the Revolving Credit Facility, depending on average excess availability under the Revolving Credit Facility; (ii) a letter of credit participation fee on the aggregate stated amount of each letter of credit equal to the applicable margin for adjusted Eurodollar rate loans, as applicable; and (iii) certain other customary fees and expenses of the lenders and agents thereunder. The Revolving Credit Facility contains customary covenants, including, but not limited to, restrictions on the Borrower’s ability and that of its subsidiaries to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make acquisitions, loans, advances or investments, pay dividends, sell or otherwise transfer assets, optionally prepay or modify terms of any junior indebtedness, enter into transactions with affiliates or change its line of business. The Revolving Credit Facility will require the maintenance of a fixed charge coverage ratio (as set forth in the credit agreement governing the Revolving Credit Facility) of 1.00 to 1.00 at the end of each fiscal quarter when excess availability is less than the greater of $ 25.0 million and 10 % of the lesser of the borrowing base and maximum borrowing capacity. Such fixed charge coverage ratio will be tested at the end of each quarter until such time as excess availability exceeds the level set forth above. The Revolving Credit Facility provides that, upon the occurrence of certain events of default, the Borrower’s obligations thereunder may be accelerated and the lending commitments terminated. Such events of default include payment defaults to the lenders thereunder, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy, insolvency, corporate arrangement, winding-up, liquidation or similar proceedings, material money judgments, material pension-plan events, certain change of control events and other customary events of default. On October 28, 2021, the Borrower and Holdings also entered into the First Amendment to ABL Revolving Credit Agreement (the “ABL Amendment”), which amended the ABL Revolving Credit Agreement, dated October 28, 2020, by and among the Borrower, Holdings, the lenders from time to time party thereto and Bank of America, as administrative agent. The ABL Amendment was entered into by the Borrower to amend certain terms and provisions, including (i) reducing the interest rate floor for Eurocurrency rate loans from 0.50 % to 0.00 % and base rate loans from 1.50 % to 1.00 %, and (ii) updating the provisions by which U.S. Dollar LIBOR will eventually be replaced with SOFR or another interest rate benchmark to reflect the most recent standards and practices used in the industry. The ABL amendment was deemed to be a modification of the revolving credit facility for accounting purposes. On December 2, 2022, the Borrower, Holdings and certain of the Borrower’s subsidiaries, entered into the Second Amendment to ABL Revolving Credit Agreement (the “Second Amendment”), which amends the ABL Revolving Credit Agreement, by and among the Borrower, Holdings, the lenders from time to time party thereto and Bank of America, as administrative agent, and the other parties thereto. The Second Amendment was entered into by the Borrower to amend certain terms and provisions of the Revolving Credit Facility, including, among other things: (i) increasing the aggregate amount of maximum revolving commitments available from $ 400 million to $ 500 million; (ii) replacing the Eurocurrency Rate interest rate metric with a metric based on Term SOFR (as defined in the Second Amendment), whereby applicable borrowings in United States dollars will bear interest at a floating rate based on Term SOFR plus an applicable margin; (iii) reducing each applicable interest rate pricing tier based on the Average Historical Excess Availability (as defined therein) with respect to Term SOFR borrowings, Alternative Currency borrowings, base rate borrowings and Canadian Prime Rate borrowings, in each case for each pricing tier by 0.25 % per annum; and (iv) extending the scheduled maturity date of the borrowings to December 2, 2027. Term Loan Facility The Term Loan Facility consists of a term loan credit facility denominated in U.S. dollars in an aggregate principal amount of $ 1.299 billion. Borrowings under the Term Loan Facility amortize in equal quarterly installments in an amount equal to 1.00 % per annum of the principal amount. Borrowings will bear interest at a floating rate, which can be either an adjusted Eurodollar rate plus an applicable margin or, at the Borrower’s option, a base rate plus an applicable margin. The applicable margins for the Term Loan Facility are 5.25 % with respect to Eurodollar rate borrowings and 4.25 % with respect to base rate borrowings. The Borrower may voluntarily prepay loans or reduce commitments under the Term Loan Facility, in whole or in part, subject to minimum amounts, with prior notice but without premium or penalty (other than a 1.00 % premium on any prepayment in connection 83 with a repricing transaction prior to the date that is twelve months after the date the Company entered into the Term Loan Facility on October 28, 2020). The Borrower will be required to prepay the Term Loan Facility with 100 % of the net cash proceeds of certain asset sales (such percentage subject to reduction based on the achievement of specific first lien net leverage ratios) and subject to certain reinvestment rights, 100 % of the net cash proceeds of certain debt issuances and 50 % of excess cash flow (such percentage subject to reduction based on the achievement of specific first lien net leverage ratios). The Borrower was not required to make any excess cash flow payment for the year ended December 31, 2020, and the Borrower did not make any other mandatory or voluntary prepayments of the Term Loan Facility for the years ended December 31, 2022 and 2021. The Borrower’s obligations under the Term Loan Facility are guaranteed by Holdings and the Guarantors. The Term Loan Facility is secured by a lien on substantially all of Holdings’, the Borrower’s and the Guarantors’ assets (subject to certain permitted exceptions). The Term Loan Facility has a first- priority lien on the fixed asset collateral (equal in priority with the liens securing the Notes) and a second-priority lien on the current asset collateral (second in priority to the liens securing the Revolving Credit Facility), in each case, subject to other permitted liens. The Term Loan Facility contains certain customary negative covenants, including, but not limited to, restrictions on the Borrower’s ability and that of its restricted subsidiaries to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, pay dividends or make other restricted payments, sell or otherwise transfer assets or enter into transactions with affiliates. The Term Loan Facility provides that, upon the occurrence of certain events of default, the Company’s obligations thereunder may be accelerated. Such events of default will include payment defaults to the lenders thereunder, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy, insolvency, corporate arrangement, winding-up, liquidation or similar proceedings, material money judgments, change of control and other customary events of default. On October 28, 2021 (the “First Lien Amendment Effective Date”), the Borrower, together Holdings and certain of the Borrower’s subsidiaries, entered into Amendment No. 1 to the First Lien Credit Agreement (the “First Lien Amendment”), which amended the Term Loan Facility, dated October 28, 2020, by and among the Borrower, Holdings, Bank of America, as administrative agent and collateral agent, each lender party from time to time thereto, and the other parties thereto. The First Lien Amendment was entered into by the Borrower to reduce the applicable interest rate on the term loan to 5.25 % per annum. Additional terms and provisions amended include (i) resetting the period for six months following the First Lien Amendment Effective Date in which a 1.00 % prepayment premium shall apply to any prepayment of the term loan in connection with certain repricing events, and (ii) updating the provisions by which U.S. Dollar LIBOR will eventually be replaced with SOFR or another interest rate benchmark to reflect the most recent standards and practices used in the industry. Th e First Lien Amendment was deemed to be a modification of the term loan facility for accounting purposes. In connection with the First Lien Amendment, the Company incurred $ 2.3 million of third-party fees and expenses and recognized $ 1.5 million of non-cash expense on the extinguishment of debt from write off of unamortized debt issuance costs which were recorded in " Interest expense, net” in the Consolidated Statements of Operations and Comprehensive (Loss) Income during the year ended December 31, 2021. Senior Secured Notes In connection with the Transactions, Advantage Solutions FinCo LLC (“Finco”) issued $ 775.0 million aggregate principal amount of 6.50 % Senior Secured Notes due 2028 (the “Notes”). Substantially concurrently with the Merger, Finco merged with and into Advantage Sales & Marketing Inc. (the “Issuer”), with the Issuer continuing as the surviving entity and assuming the obligations of Finco. The Notes were sold to BofA Securities, Inc., Deutsche Bank Securities Inc., Morgan Stanley & Co. LLC and Apollo Global Securities, LLC. The Notes were resold to certain non-U.S. persons pursuant to Regulation S under the Securities Act of 1933, as amended (the “Securities Act”), and to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act at a purchase price equal to 100 % of their principal amount. The terms of the Notes are governed by an Indenture, dated as of October 28, 2020 (the “Indenture”), among Finco, the Issuer, the guarantors named therein (the “Notes Guarantors”) and Wilmington Trust, National Association, as trustee and collateral agent. Interest and maturity Interest on the Notes is payable semi-annually in arrears on May 15 and November 15 at a rate of 6.50% per annum, commencing on May 15, 2021 . The Notes will mature on November 15, 2028 . 84 Guarantees The Notes are guaranteed by Holdings and each of the Issuer’s direct and indirect wholly owned material U.S. subsidiaries (subject to certain permitted exceptions) and Canadian subsidiaries (subject to certain permitted exceptions, including exceptions based on immateriality thresholders of aggregate assets and revenues of Canadian subsidiaries) that is a borrower or guarantor under the Term Loan Facility. Security and ranking The Notes and the related guarantees are the general, senior secured obligations of the Issuer and the Notes Guarantors, are secured on a first-priority pari passu basis by security interests on the fixed asset collateral (equal in priority with liens securing the Term Loan Facility), and are secured on a second-priority basis by security interests on the current asset collateral (second in priority to the liens securing the Revolving Credit Facility and equal in priority with liens securing the Term Loan Facility), in each case, subject to certain limitations and exceptions and permitted liens. The Notes and related guarantees rank (i) equally in right of payment with all of the Issuer’s and the Guarantors’ senior indebtedness, without giving effect to collateral arrangements (including the Senior Secured Credit Facilities) and effectively equal to all of the Issuer’s and the Guarantors’ senior indebtedness secured on the same priority basis as the Notes, including the Term Loan Facility, (ii) effectively subordinated to any of the Issuer’s and the Guarantors’ indebtedness that is secured by assets that do not constitute collateral for the Notes to the extent of the value of the assets securing such indebtedness and to indebtedness that is secured by a senior-priority lien, including the Revolving Credit Facility to the extent of the value of the current asset collateral and (iii) structurally subordinated to the liabilities of the Issuer’s non-Guarantor subsidiaries. Optional redemption for the Notes The Notes are redeemable on or after November 15, 2023 at the applicable redemption prices specified in the Indenture plus accrued and unpaid interest. The Notes may also be redeemed at any time prior to November 15, 2023 at a redemption price equal to 100 % of the aggregate principal amount of such Notes to be redeemed plus a “make-whole” premium, plus accrued and unpaid interest. In addition, the Issuer may redeem up to 40 % of the original aggregate principal amount of Notes before November 15, 2023 with the net cash proceeds of certain equity offerings at a redemption price equal to 106.5 % of the aggregate principal amount of such Notes to be redeemed, plus accrued and unpaid interest. Furthermore, prior to November 15, 2023, the Issuer may redeem during each calendar year up to 10 % of the original aggregate principal amount of the Notes at a redemption price equal to 103 % of the aggregate principal amount of such Notes to be redeemed, plus accrued and unpaid interest. If the Issuer or its restricted subsidiaries sell certain of their respective assets or experience specific kinds of changes of control, subject to certain exceptions, the Issuer must offer to purchase the Notes at par. In connection with any offer to purchase all Notes, if holders of no less than 90 % of the aggregate principal amount of Notes validly tender their Notes, the Issuer is entitled to redeem any remaining Notes at the price offered to each holder. Restrictive covenants The Notes are subject to covenants that, among other things limit the Issuer’s ability and its restricted subsidiaries’ ability to: incur additional indebtedness or guarantee indebtedness; pay dividends or make other distributions in respect of, or repurchase or redeem, the Issuer’s or a parent entity’s capital stock; prepay, redeem or repurchase certain indebtedness; issue certain preferred stock or similar equity securities; make loans and investments; sell or otherwise dispose of assets; incur liens; enter into transactions with affiliates; enter into agreements restricting the Issuer’s subsidiaries’ ability to pay dividends; and consolidate, merge or sell all or substantially all of the Issuer’s assets. Most of these covenants will be suspended on the Notes when they have investment grade ratings from both Moody’s Investors Service, Inc. and S&P Global Ratings and so long as no default or event of default under the Indenture has occurred and is continuing. Events of default The following constitute events of default under the Notes, among others: default in the payment of interest; default in the payment of principal; failure to comply with covenants; failure to pay other indebtedness after final maturity or acceleration of other indebtedness exceeding a specified amount; certain events of bankruptcy; failure to pay a judgment for payment of money exceeding a specified aggregate amount; voidance of subsidiary guarantees; failure of any material provision of any security document or intercreditor agreement to be in full force and effect; and lack of perfection of liens on a material portion of the collateral, in each case subject to applicable grace periods. 85 Government Loans for COVID-19 Relief On May 25, 2020, a majority owned subsidiary of the Company operating in Japan entered into two loan agreements with a bank lender pursuant to a local government loan program. Subsequently, one of the loans was refinanced on October 26, 2020. No loss on extinguishment of debt was recognized. The loans, which includes the loan that was refinanced on October 26, 2020, bear interest rates of 1.82 % and 1.83 % per annum with maturity dates of May 27, 2029 and October 27, 2029 , respectively, and the amounts under the loans will be repayable to the lender in monthly installments. On December 28, 2021, the same subsidiary entered into a loan agreement from the bank lender pursuant to a local government loan program. The purpose of the loan is to use the borrowed funds for working capital and to fund the anticipated recovery of business operations from the COVID-19 pandemic. The loan bears interest rate of 0.35 % per annum until December 24, 2024 , at which time the loan will bear an interest rate of 1.25 % until the maturity date of December 31, 2036 . As of December 31, 2022 and 2021, the Company had aggregate principal amounts of $ 4.5 million and $ 5.2 million borrowings outstanding, respectively, associated with government loan programs for relief associated with the COVID-19 pandemic. Debt Maturities Future minimum principal payments on long-term debt are as follows: (in thousands) 2023 $ 14,242 2024 13,827 2025 13,995 2026 13,801 2027 13,791 Thereafter 2,009,531 Total future minimum principal payments $ 2,079,187 8. Leases The Company leases facilities, and equipment under noncancelable leases that have been classified as operating leases for financial reporting purposes. These leases often include one or more options to renew and the lease term includes the renewal terms when it is reasonably certain that the Company will exercise the option. In general, for the Company’s material leases, the renewal options are not included in the calculation of its right-of-use assets and lease liabilities, as the Company does not believe that it is reasonably certain that these renewal options will be exercised. The Company’s lease agreements do not contain any material residual guarantees or material restrictive covenants. All operating lease expenses are recognized on a straight-line basis over the lease term as a component of “Selling, general, and administrative expenses” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. Payments under the Company’s lease arrangements are primarily fixed. However, certain lease agreements contain variable costs, which are expensed as incurred and not included in the calculation of the Company’s right-of-use assets and related liabilities for those leases. These costs typically include real estate taxes, common area maintenance and utilities for which the Company is obligated to pay under the terms of those leases. During the years ended December 31, 2022, 2021, and 2020, the Company expensed approximately $ 30.7 million, $ 28.7 million, and $ 44.2 million, respectively, of total operating lease costs, which includes $ 4.4 million, $ 4.6 million, and $ 6.6 million, of variable lease costs, respectively. Beginning in mid-March of 2020, in response to the COVID-19 pandemic, the Company established a global work from home policy. A significant portion of the Company’s office-based workforce temporarily transitioned to working from home and the Company commenced a plan to strategically exit certain offices during the year ended December 31, 2020. Based on a number of factors, the Company concluded that this strategic initiative did not result in a triggering event that would indicate that the Company’s related asset groups may not be recoverable as of December 31, 2020. In enacting the plan, the Company abandoned several office leases prior to reaching termination agreements with its landlords, and as a result, adjusted the useful life of these asset to reflect the remaining expected use. The reduction to the right-of use assets and liabilities related to these leases resulted in an additional lease gain of $ 0.3 million, $ 1.9 million, and $ 0.8 million for the years ended December 31, 2022, 2021, and 2020, respectively. Additionally, the Company paid $ 1.3 million, $ 6.8 million and $ 18.0 million in termination fees for the years ended December 31, 86 2022, 2021 and 2020, respectively, which were recorded in “Selling, general and administrative expenses” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. Based on the present value of the lease payments for the remaining lease term of the Company’s existing leases, the Company’s right-of-use assets and lease liabilities for operating leases as of December 31, 2022 and 2021 were as follows: December 31, (in thousands) Classification 2022 2021 Assets Operating lease right-of-use assets Other assets $ 61,072 $ 47,487 Liabilities Current operating lease liabilities Other accrued expenses 21,584 20,415 Noncurrent operating lease liabilities Other long-term liabilities 56,371 40,444 Total lease liabilities $ 77,955 $ 60,859 Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. In determining its incremental borrowing rate, the Company reviewed the terms of its leases, its credit facilities, and other factors. Information related to the Company’s right-of-use assets and related lease liabilities were as follows: Year Ended December 31, (in thousands) 2022 2021 2020 Cash paid for operating lease liabilities $ 23,298 $ 25,022 42,670 Right-of-use assets obtained in exchange for new operating lease obligations 31,007 19,869 7,496 Weighted-average remaining lease term 4.2 4.1 4.7 Weighted-average discount rate 8.6 % 7.7 % 9.8 % Maturities of lease liabilities as of December 31, 2022 were as follows: (in thousands) 2023 $ 27,003 2024 22,623 2025 17,042 2026 12,651 2027 7,182 Thereafter 7,592 Total lease payments $ 94,093 Less imputed interest ( 16,138 ) Present value of lease liabilities $ 77,955 9. Fair Value of Financial Instruments The Company measures fair value based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. As of December 31, 2022, and 2021, the Company’s interest rate derivatives and forward contracts are Level 2 assets and liabilities with the related fair values based on third-party pricing service models. These models use discounted cash flows that utilize market-based forward swap curves commensurate with the terms of the underlying instruments. As of December 31, 2022, and 2021, the contingent consideration liabilities are Level 3 assets and liabilities with the related fair values based on the significant unobservable inputs and probability weightings in using the income approach. 87 The following table sets forth the Company’s financial assets and liabilities measured on a recurring basis at fair value, categorized by input level within the fair value hierarchy. The carrying amounts of “Cash and cash equivalents”, “Accounts receivable”, and “Accounts payable” approximate fair value due to the short-term maturities of these financial instruments in the Consolidated Balance Sheets. December 31, 2022 (in thousands) Fair Value Level 1 Level 2 Level 3 Assets measured at fair value Derivative financial instruments $ 47,493 $ — $ 47,493 $ — Total assets measured at fair value $ 47,493 $ — $ 47,493 $ — Liabilities measured at fair value Warrant liability $ 953 $ — $ 953 $ — Contingent consideration liabilities 20,334 — — 20,334 Total liabilities measured at fair value $ 21,287 $ — $ 953 $ 20,334 December 31, 2021 (in thousands) Fair Value Level 1 Level 2 Level 3 Assets measured at fair value Derivative financial instruments $ 10,164 $ — $ 10,164 $ — Total assets measured at fair value $ 10,164 $ — $ 10,164 $ — Liabilities measured at fair value Derivative financial instruments $ 385 $ — $ 385 $ — Warrant liability 22,189 — — 22,189 Contingent consideration liabilities 58,366 — — 58,366 Total liabilities measured at fair value $ 80,940 $ — $ 385 $ 80,555 Interest Rate Cap Agreements As of December 31, 2022 and 2021, the Company had interest rate cap contracts with an aggregate notional value of principals of $ 650.0 million and $ 2.2 billion, respectively, from various financial institutions to manage the Company’s exposure to interest rate movements on variable rate credit facilities. As of December 31, 2022, the aggregate fair value of the Company’s outstanding interest rate caps represented an outstanding net asset of $ 47.5 million. As of December 31, 2021, the aggregate fair value of the Company’s outstanding interest rate caps represented an outstanding net asset of $ 10.2 million and an outstanding net liability of $ 0.4 million. As of December 31, 2022, $ 47.5 million of the Company’s fair value of outstanding interest rate caps were included in “Prepaid expenses and other current assets” in the Consolidated Balance Sheets, with changes in fair value recognized as a component of “Interest expense, net” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. As of December 31, 2021, $ 10.2 million and $ 0.4 million of the Company’s fair value of outstanding interest rate caps were included in “Prepaid expenses and other current assets” and “Other accrued expenses” in the Consolidated Balance Sheets, respectively, with changes in fair value recognized as a component of “Interest expense, net” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. During the years ended December 31, 2022, 2021, and 2020, the Company recognized interest income of $ 43.8 million, interest income of $ 8.3 million and interest expense of $ 0.4 million, respectively, related to changes in the fair value of its derivative instruments, respectively. Warrant Liability The estimated fair value of the liability is recorded using significant unobservable measures and other fair value inputs and is therefore classified as a Level 2 financial instrument. The warrant liability is stated at fair value at each reporting period with the change in fair value recorded on the Consolidated Statement of Operations and Comprehensive (Loss) Income until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified as an equity instrument. On October 28, 2020, the Company recorded the initial warrant liability of the private placement warrants of $ 7.9 million. Subsequently, the warrant liability was remeasured to fair value resulting in a gain of $ 21.2 million and a loss of $ 1.0 million reflected in “Change in fair value of warrant liability” in the Consolidated Statements of Operations and Comprehensive (Loss) Income during the year ended December 31, 2022 and 2021, respectively. As of December 31, 2022, and 2021, 7,333,333 private placement warrants remained outstanding at fair value of $ 1.0 million and $ 22.2 million, respectively. 88 The Company previously valued its private placement warrants using a Black-Scholes Model. The private placement warrants were classified as Level 3 at the initial measurement date due to the use of unobservable inputs. Beginning in the first quarter of 2022, they are classified as Level 2 based on the availability of sufficient observable information using the price of the public warrants as an indirectly observable quoted price in active markets to measure the fair value of the private placement warrants, which is inherently less subjective and judgmental given it is based on observable inputs. Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs. Long-term Debt The following table sets forth the carrying values and fair values of the Company’s financial liabilities measured on a non-recurring basis, categorized by input level within the fair value hierarchy: (in thousands) Carrying Value Fair Value (Level 2) Balance at December 31, 2022 Term Loan Facility $ 1,298,500 $ 1,372,125 Notes 775,000 736,517 Government loans for COVID-19 relief 4,480 4,723 Other 1,207 1,207 Total long-term debt $ 2,079,187 $ 2,114,572 (in thousands) Carrying Value Fair Value (Level 2) Balance at December 31, 2021 Term Loan Facility $ 1,311,750 $ 1,406,552 Notes 775,000 894,611 Government loans for COVID-19 relief 5,212 5,615 Other 1,113 1,113 Total long-term debt $ 2,093,075 $ 2,307,891 The fair value of debt reported in the table above is based on adjusted price quotations on the debt instruments in an active market. The Company believes that the carrying value of its other borrowings, including amounts outstanding, if any, for the Revolving Credit Facility, approximate fair market value based on maturities for debt of similar terms. 10. Investments Investments in Unconsolidated Affiliates The Company’s significant equity investments primarily consist of Global Smollan Holdings ( 25 % ownership), Smollan Holding Proprietary Limited ( 25 % ownership), Partnership SPV 1 Limited ( 12.5 % ownership), and Ceuta Holding Limited ( 8.8 % ownership). Income from the Company’s equity method investments, included in “Cost of revenues” in the Consolidated Statements of Operations and Comprehensive (Loss) Income, was $ 10.6 million, $ 10.3 million, and $ 5.1 million for the years ended December 31, 2022, 2021, and 2020, respectively. The Company’s proportionate share in their net assets at December 31, 2022, and 2021 were $ 123.2 million and $ 118.0 million, respectively. The Company’s equity method investments are not material to the Company’s results of operations or financial position; therefore, no summarized financial information for the Company’s unconsolidated subsidiaries has been presented. The Company holds 9.9 % of the outstanding common shares of a subsidiary of a Japanese supermarket chain (“ATV”). The Company has no substantial influence over ATV. The Company elected the measurement alternative to value this equity investment without a readily determinable fair value. The Company will continue to apply the alternative measurement guidance until this investment does not qualify to be so measured. The carrying value of the investment was $ 6.3 million and $ 7.1 million as of December 31, 2022 and 2021, respectively. 11. Stock-Based Compensation and Other Benefit Plans The Company has issued nonqualified stock options, RSUs (as defined below), and PSUs (as defined below) under the Advantage Solutions Inc. 2020 Incentive Award Plan (the “Plan”). The Company’s RSUs and PSUs, as described below, are expensed and reported as non-vested shares. The Company recognized stock-based compensation expense of $ 36.9 million and $ 39.4 million 89 for the year ended December 31, 2022 and 2021, respectively. The related deferred tax benefit for stock-based compensation recognized was $ 7.9 million and $ 6.6 million for the year ended December 31, 2022 and 2021, respectively. Performance Restricted Stock Units Performance restricted stock units (“PSUs”) are subject to the achievement of certain performance conditions based on the Company’s revenues (“PSU Revenues”) and Adjusted EBITDA (“PSU EBITDA”) targets in the respective measurement period and the recipient’s continued service to the Company. The PSUs are scheduled to vest over a three-year period from the date of grant and may vest from 0 % to 150 % of the number of shares set forth in the table below. The number of PSUs earned shall be adjusted to be proportional to the partial performance between the Threshold Goals, Target Goals and Maximum Goals. Details for each aforementioned defined term for each grant have been provided in the table below. During the first quarter of 2022, the Compensation Committee determined that the achievement of the performance objective applicable to the PSU EBITDA 2021 objective was 64.6 % of target and the achievement of the performance objective applicable to the PSU Revenues 2021 objective was 126.2 % of target. In the first quarter of 2022, the Compensation Committee determined that the PSU Revenues and PSU EBITDA metrics will be measured separately when determining whether above-target performance has been maintained for future year performance. Such determination is applicable to the PSUs grants made in 2021 and in 2022. As a result, the 26.2 % above-target performance on PSU Revenues for 2021 must be maintained in 2022 and 2023 in order for the corresponding above-target PSUs to vest in January 2024. Assuming there is no decline in performance with respect to PSU Revenues in 2022 and 2023, an amount equal to approximately 9.2 % of the target number of PSUs granted in January 2021 will vest in full in January 2024 as a result of the above-target PSU Revenues performance for fiscal 2021. The performance period for those awards ended on December 31, 2021 but remain subject to service-based vesting conditions. Under the provision of ASC 718 Compensation—Stock Compensation , the Company determined that 2021 PSUs granted were modified as of March 11, 2022 related to 205,834 above-target PSU Revenues metrics. The stock-based compensation expense for such modification was accounted for as a cancellation of the original award and the issuance of a new award using the fair value of the award on the date of modification. The fair value of PSU grants was equal to the closing price of the Company's stock on the date of the applicable grant. The maximum potential expense if the Maximum Goals were met for these awards has been provided in the table below. Recognition of expense associated with performance-based stock is not permitted until achievement of the performance targets are probable of occurring. (in thousands, except share and per share data) Performance Period Number of Shares Threshold Number of Shares Target Number of Shares Maximum Weighted Average Fair Value per Share Maximum Remaining Unrecognized Compensation Expense Weighted-average remaining requisite service periods January 1, 2022—December 31, 2022 2,534,250 5,068,499 7,584,760 $ 5.47 $ 78,316 1.4 years January 1, 2021—December 31, 2021 1,108,390 1,108,390 1,304,565 $ 13.19 $ 3,234 1.0 years The following table summarizes the PSU activity for the year ended December 31, 2022: Performance Share Units Weighted Average Grant Date Fair Value Outstanding at January 1, 2022 2,609,079 $ 13.07 Granted 5,727,905 $ 5.46 Distributed ( 665,306 ) $ 13.06 Forfeited ( 921,042 ) $ 7.35 PSU performance adjustment ( 377,572 ) $ 11.19 Outstanding at December 31, 2022 6,373,064 $ 7.05 Restricted Stock Units Restricted stock units (“RSUs”) are subject to the recipient’s continued service to the Company. The RSUs are generally scheduled to vest over three years and are subject to the provisions of the agreement under the Plan. 90 During the year ended December 31, 2022, the following activities involving RSUs occurred under the Plan: Number of RSUs Weighted Average Grant Date Fair Value Outstanding at January 1, 2022 3,660,553 $ 10.64 Granted 8,497,756 $ 4.84 Distributed ( 1,356,365 ) $ 10.56 Forfeited ( 1,225,184 ) $ 7.46 Outstanding at December 31, 2022 9,576,760 $ 5.91 As of December 31, 2022, the total remaining unrecognized compensation cost related to RSUs amounted to $ 26.1 million, which will be amortized over the weighted-average remaining requisite service periods of 2.1 years. Common Series C Units and C-2 Units The Limited Partnership Agreement allows profits interests in Topco to be granted to directors, officers, employees, and consultants of Topco and its subsidiaries. The performance-based profits interests (“Common Series C Units”) are subject to certain vesting requirements, as described below. Common Series C Units were granted at no cost to employees of the Company. As the result of an amendment and restatement of the Limited Partnership Agreement, on March 15, 2018, 75 % of all Common Series C Units awards are subject to vesting over four fiscal years from their respective issuance date. The remaining 25 % of the units were forfeited. To the extent the Common Series C Units vest, such units may still be forfeited as a result of termination of the employment of the applicable holders or upon a non-qualifying exit event. Certain awards vest over the remaining initial four-year term, subject to the employee’s continued employment. In addition, Topco issued certain Common Series C Units in connection with the 2017 acquisition of Daymon Worldwide Inc. (“Daymon”) to certain Daymon employees, certain of which were deemed to vested upon issuance, and certain of which vested in four annual installments, subject to such employee’s continued employment with the Company. The Limited Partnership Agreement also authorizes Topco to issue 35,000 Common Series C-2 Units to employees of the Company, which are deemed to be vested upon issuance and subject to substantially similar forfeiture provisions as the Common Series C Units, including forfeiture upon certain terminations of employment with the Company of the applicable holders or a non-qualifying exit event. A valuation, including an option pricing method allocation and Monte Carlo simulation, was used to estimate the fair value of Common Series C Units and Common Series C-2 Units. The expected price volatility is based on the average of the historical volatility of comparable public companies. The risk-free rate is based on U.S. Treasury yields in effect at the time of grant over the expected term. The Company did not use a dividend yield as it has not historically paid distributions. The following weighted average assumptions were used in determining the fair value of Common Series C Unit grants made during the year ended December 31, 2020: Year Ended December 31, 2020 Grant date fair value $ 201.25 Dividend yield 0.0 % Expected volatility 75.3 % Risk-free interest rate 0.2 % Lack of marketability discount 30.5 % Expected term 1.0 years The following weighted average assumptions were used in determining the fair value of Common Series C-2 Unit grants made during the year ended December 31, 2020: Year Ended December 31, 2020 Grant date fair value $ 223.00 Dividend yield 0.0 % Yield test probability 23.3 % Cost of equity capital 11.8 % Expected term 1.0 years 91 Topco has the option to repurchase Common Series C Units for cash. The following table summarizes the activity in the Common Series C Units: Year Ended December 31, 2022 Beginning of the period 166,790 Forfeitures ( 33,900 ) End of the period 132,890 The following table summarizes the activity in the Common Series C-2 Units: Year Ended December 31, 2022 Beginning of the period 29,875 Forfeitures ( 4,780 ) End of the period 25,095 The Company classified the Merger as a vesting exit event for accounting purposes associated with the Common Series C and C-2 Units. As a result, the Company recognized non-cash compensation expenses of $ 62.7 million in connection with the Common Series C Units and $ 13.3 million in connection with the Common Series C-2 Units for the year ended December 31, 2020. As the vesting exit event was at Topco, there was no impact to the Company’s outstanding shares of Common Stock. Common Series D Units In 2014, Topco issued 30,000 time-vesting profits interests (“Common Series D Units”) to entities affiliated with one equity sponsor of Topco. Time-vesting profits interests vest on a monthly basis that began on October 1, 2014 and ended on September 1, 2019. The compensation expense associated with the issuance of such awards for non-employees is recorded by the Company as the Company receives the benefit of the services being provided by the non-employees. The Company measures the fair value of the Common Series D Units quarterly throughout the five-year vesting period and recognizes this cost ratably over the vesting period. There were no grants during the years ended December 31, 2022, 2021, and 2020. The OPM was used to estimate the Common Series D Units fair value of $ 300 as of the grant date. The expected share price volatility is based on the average of the historical volatility of comparable public companies. The risk-free rate is based on U.S. Treasury yields in effect at the time of grant over the expected term. The Company did not use a dividend yield as it has not historically paid distributions. The fair value of these units at the end of each measurement period were $ 5 , $ 143 , and $ 644 per unit as of December 31, 2022, 2021, and 2020. Since the Common Series D Units that were issued under the Limited Partnership Agreement were for interests in Topco, which is outside of the consolidated group, the value of the profits interests were marked to market at each of the Company’s reporting periods. The following assumptions were used in determining the fair value of Common Series D Units: Year Ended December 31, 2022 Grant date fair value $ 300.00 Dividend yield 0.0 % Expected volatility 53.0 % Risk-free interest rate 4.3 % Lack of marketability discount 32.0 % Expected term 1.9 years On December 31, 2022, there were 30,000 Common Series D Units outstanding. During the years ended December 31, 2022, 2021, and 2020, the Company recorded equity-based compensation expense of $ 4.1 million, $ 15.0 million, and $ 13.8 million, respectively, included in “Selling, general, and administrative expenses” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. 92 Stock Options During the year ended December 31, 2022, the following activities involving stock options occurred under the Plan: Stock Options Weighted Average Exercise Price Outstanding at January 1, 2022 261,324 $ 9.20 Granted 2,115,664 $ 3.92 Forfeited ( 261,324 ) $ 9.20 Outstanding at December 31, 2022 2,115,664 $ 3.92 Stock-based compensation costs related to stock options granted to employees are measured at the date of grant based on the estimated fair value of the award, net of estimated forfeitures. The Company estimates the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The Company recognizes compensation costs for awards with service vesting conditions on an accelerated method under the graded vesting method over the requisite service period of the award, which is generally the vesting term of three years . The Black-Scholes option-pricing model requires the use of highly subjective assumptions which determine the fair value of stock-based awards. The assumptions used in the Company's option-pricing model represent management’s best estimates. These estimates are complex, involve a number of variables, uncertainties and assumptions and the application of management’s judgment, so that they are inherently subjective. If factors change and different assumptions are used, the Company's stock-based compensation expense could be materially different in the future. These assumptions are estimated as follows: • Fair Value of Common Stock . Represents the publicly quoted price as the fair value of ADV common stock. • Risk-Free Interest Rate . The Company based the risk-free interest rate used in the Black-Scholes option-pricing model on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term of the options for each option group. • Expected Term . The expected term represents the period that the stock-based awards are expected to be outstanding. Because of the limitations on the sale or transfer or the Company's common stock as a previously privately held company, the Company does not believe its historical exercise pattern for similar awards is indicative of the pattern the Company will experience as a publicly traded company. Management has consequently used the Staff Accounting Bulletin, or SAB 110, Simplified Method to calculate the expected term, which is the average of the contractual term and vesting period. The Company plans to continue to use the SAB 110 Simplified Method until the Company has sufficient trading history as a publicly traded company. • Volatility . Management determined the price volatility factor based on the historical volatilities of a relevant peer group as the Company did not have a sufficient trading history of common stock. Industry peers consist of several public companies that provide similar services with comparable characteristics including enterprise value, risk profiles and position within the industry. The Company intends to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of the Company's own common stock share price becomes available, or unless circumstances change such that the identified companies are no longer similar, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation. • Dividend Yield . The expected dividend assumption is based on expectations about the Company's anticipated dividend policy. The Company currently does not expect to issue any dividends. In addition to assumptions used in the Black-Scholes option-pricing model, the Company must also estimate a forfeiture rate to calculate the stock-based compensation for the Company's awards. The Company will continue to use judgment in evaluating the assumptions related to the Company's stock-based compensation on a prospective basis. As the Company continue to accumulate additional data, the Company may have refinements to the Company's estimates, which could materially impact the Company's future stock-based compensation expense. The fair value of the employee stock options was estimated using the following assumptions for the periods presented: December 31, 2022 2021 Share Price $ 3.92 $ 9.20 Dividend yield 0.0 % 0.0 % Expected volatility 34.4 % 28.7 % Risk-free interest rate 2.9 % 1.1 % Expected term 6.5 years 6.5 years 93 As of December 31, 2022, the Company had approximately $ 2.2 million of total unrecognized compensation expense related to stock options, net of related forfeiture estimates, which the Company expects to recognize over a weighted-average period of approximately 1.7 years. The intrinsic value of all outstanding options as of December 31, 2022 was zero based on the market price of the Company's common stock of $ 2.08 per share. Employee Stock Purchase Plan In October 2020, the board of directors adopted, and the stockholders subsequently approved, the 2020 Employee Stock Purchase Plan, as amended (the “ESPP”). The Board has delegated concurrent authority to administer the ESPP to the Compensation Committee under the terms of the Compensation Committee’s charter. Employees, may have to satisfy one or more of the following service requirements before participating in the ESPP, as determined by the administrator: (a) customary employment with the Company for more than 20 hours per week and more than five months per calendar year, or (b) continuous employment with the Company for a minimum period of time, not to exceed two years, prior to the first date of an offering. An employee may not be granted rights to purchase stock under the ESPP if such employee (x) immediately after the grant would own stock possessing five percent or more of the total combined voting power or value of the common stock, or (y) would purchase in excess of $ 25,000 of fair market value of such stock in an offering period. Additionally, “highly compensated employees” may not be granted rights to purchase stock under the ESPP. This includes individuals with compensation above a specified level, who is an officer and/or is subject to the disclosure requirements of Section 16(a) of the Exchange Act. The administrator may approve offerings with a duration of not more than 27 months, and may specify one or more shorter purchase periods within each offering (“Offering Period”). Each offering will have one or more purchase dates on which shares of the common stock will be purchased for the employees who are participating in the offering. The administrator, in its discretion, will determine the terms of offerings under the ESPP. The ESPP permits participants to purchase shares of the common stock through payroll deductions with up to 15 % of their earnings. The purchase price of the shares will not be less than 85 % of the lower of the fair market value of the common stock on the first day of an offering or on the date of purchase. Payroll deductions shall be equal to at least one percent ( 1 %) of the participant’s compensation as of each payday of the Offering Period following the Enrollment Date, but not more than the lesser of fifteen percent ( 15 %) of the participant’s compensation as of each payday of the Offering Period following the Enrollment Date or $ 25,000 per offering period. A participant may not transfer purchase rights under the ESPP other than by will, the laws of descent and distribution or as otherwise provided under the ESPP. In the event of a specified corporate transaction, such as a merger or change in control, a successor corporation may assume, continue or substitute each outstanding purchase right. If the successor corporation does not assume, continue or substitute for the outstanding purchase rights, the offering in progress will be shortened and a new exercise date will be set. The participants’ purchase rights will be exercised on the new exercise date and such purchase rights will terminate immediately thereafter. The ESPP will remain in effect until terminated by the administrator in accordance with the terms of the ESPP. The board of directors has the authority to amend, suspend or terminate the ESPP, at any time and for any reason. Employee Benefit Plans The Company sponsors 401(k) plans for certain employees who meet specified age and length of service requirements. The 401(k) plans include a deferral feature under which employees may elect to defer a portion of their salary, subject to Internal Revenue Service limitations. The Company provides a matching contribution based on a percentage of participating employees’ salaries and contributions made. Total contributions to the plan for the years ended December 31, 2022, 2021, and 2020 were $ 13.3 million, $ 12.5 million, and $ 10.8 million, respectively. 12. Equity Class A Common Stock —The Company is authorized to issue 3,290,000,000 shares of Class A common stock with a par value of $ 0.0001 per share. Holders of the Company’s Class A common stock are entitled to one vote for each share on each matter on which they are entitled to vote. At December 31, 2022, there were 319,690,300 shares of Class A common stock legally issued and outstanding. At December 31, 2021, there were 316,963,552 shares of Class A common stock legally issued and outstanding, including 5,000,000 Performance Shares issued to Topco at the Closing, which were subject to vesting upon satisfaction of a market performance condition after the Closing. Such performance shares vested on January 15, 2021 when the market performance condition was satisfied. 94 Preferred stock —The Company is authorized to issue 10,000,000 preferred stock with no par value of $0.0001 per share. At December 31, 2022 and 2021, there is no preferred stock issued or outstanding. Common stock held in treasury, at cost — On November 9, 2021, the Company announced that the board of directors authorized a new share repurchase program (the “2021 Share Repurchase Program”) pursuant to which the Company may repurchase up to $ 100 million of the Company’s Class A common stock. The 2021 Share Repurchase Program does not have an expiration date, but provides for suspension or discontinuation at any time. The 2021 Share Repurchase Program permits the repurchase of the Company’s Class A common stock on the open market and in other means from time to time. The timing and amount of any share repurchase is subject to prevailing market conditions, relevant securities laws and other considerations, and the Company is under no obligation to repurchase any specific number of shares. During the fourth quarter of 2021, the Company executed open market purchases of $ 12.6 million of the Company ’ s Class A common stock under the 2021 Share Repurchase Program. As a result of repurchases during the year ended December 31, 2021, there remains $ 87.4 million of share repurchase availability under the 2021 Share Repurchase Program as of December 31, 2022 and 2021. Warrants —As of December 31, 2022 and 2021, 11,244,988 public warrants were outstanding. Each whole warrant entitles the holder to purchase one whole share of the Company’s Class A common stock at an exercise price of $ 11.50 per share, subject to adjustment. Warrants may only be exercised for a whole number of shares of Class A common stock. No fractional warrants will be issued upon separation of the units and only whole warrants will trade. The warrants became exercisable 30 days after the completion of the Merger. The warrants will expire five years after the completion of the Merger, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation. As of December 31, 2022 and 2021, 7,333,333 private placement warrants were outstanding. The private placement warrants are identical to the public warrants, except that the private placement warrants and the Class A common stock issuable upon exercise of the private placement warrants were not transferable, assignable or salable until 30 days after the completion of the Merger, subject to certain limited exceptions. Additionally, the private placement warrants will be non-redeemable so long as they are held by the initial purchasers or such purchasers’ permitted transferees. If the private placement warrants are held by someone other than the initial stockholders or their permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants. The Company may call the warrants for redemption: For cash: • in whole and not in part; • at a price of $ 0.01 per warrant; • upon a minimum of 30 days’ prior written notice of redemption; and • if, and only if, the last reported closing price of the common stock equals or exceeds $18.00 per share (as adjusted for share splits, share dividends, reorganizations, reclassifications, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. For cash or Class A common stock: • in whole and not in part; • at a price of $0.10 per warrant, provided that the warrant holders will be able to exercise their warrants prior to redemption and receive that number of shares of Class A common stock to be determined by reference to a table included in the warrant agreement, based on the redemption date and the fair market value of the Class A common stock; • upon a minimum of 30 days ’ prior written notice of redemption; • if, and only if, the last reported closing price of the common stock equals or exceeds $10.00 per share (as adjusted for share splits, share dividends, reorganizations, reclassifications, recapitalizations and the like) on the trading day prior to the date on which the Company sends notice of redemption to the warrant holders; and • if, and only if, an effective registration statement covering the shares of Class A common stock issuable upon exercise of the warrants and a current prospectus relating thereto is available throughout the 30 day period after which written notice of redemption is given, or the Company has elected to require the exercise of the warrants on a “cashless” basis. 95 If the Company calls the warrants for redemption, management will have the option to require all holders that wish to exercise the warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend. Additionally, in the event of a recapitalization, reorganization, merger or consolidation, the kind and amount of shares of stock or other securities or property (including cash) issuable upon exercise of the warrants may be adjusted. However, the warrants will not be adjusted for issuance of Class A common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants shares. 13. Earnings Per Share The Company calculates earnings per share using a dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income by the weighted-average shares of common stock outstanding without the consideration for potential dilutive shares of common stock. Diluted earnings per share represents basic earnings per share adjusted to include the potentially dilutive effect of outstanding performance stock units, restricted stock units, public and private placement warrants, the employee stock purchase plan and stock options. Diluted earnings per share is computed by dividing the net income by the weighted-average number of common share equivalents outstanding for the period determined using the treasury stock method and if-converted method, as applicable. During periods of net loss, diluted loss per share is equal to basic loss per share because the antidilutive effect of potential common shares is disregarded. As a result of the Transactions, the Company has retrospectively adjusted the weighted-average number of common shares outstanding prior to October 28, 2020 by multiplying them by the exchange ratio used to determine the number of common shares into which they converted. The following is a reconciliation of basic and diluted net (loss) income per common share: Year Ended December 31, (in thousands, except share and earnings per share data) 2022 2021 2020 Basic earnings per share computation: Numerator: Net (loss) income attributable to stockholders of Advantage Solutions Inc. $ ( 1,380,502 ) $ 54,494 $ ( 175,806 ) Denominator: Weighted average common shares - basic 318,682,548 318,198,860 223,227,833 Basic (loss) earnings per common share $ ( 4.33 ) $ 0.17 $ ( 0.79 ) Diluted earnings per share computation: Numerator: Net (loss) income attributable to stockholders of Advantage Solutions Inc. $ ( 1,380,502 ) $ 54,494 $ ( 175,806 ) Denominator: Weighted average common shares outstanding 318,682,548 318,198,860 223,227,833 Performance Stock Units — 1,998,848 — Restricted Stock Units — 559,649 — Warrants — 4,468 — Employee stock purchase plan and stock options — 242,931 — Weighted average common shares - diluted 318,682,548 321,004,756 223,227,833 Diluted (loss) earnings per common share $ ( 4.33 ) $ 0.17 $ ( 0.79 ) During periods of net loss, diluted loss per share is equal to basic loss per share because the antidilutive effect of potential common shares is disregarded. As part of the Transactions, 5,000,000 Performance Shares were issued to Topco at Closing, which were subject to vesting upon satisfaction of a market performance condition for any period of 20 trading days out of 30 consecutive trading days during the five-year period after the Closing, and Topco was not able to vote or sell such shares until vesting. These Performance Shares were considered contingently issuable shares and remained unvested as of December 31, 2020. Therefore, these Performance Shares are excluded from shares outstanding for basic and diluted earnings per share until the contingency is resolved. The 5,000,000 96 Performance Shares vested on January 15, 2021, when the closing price for the Class A common stock exceeded $ 12.00 per share for 20 trading days out of 30 consecutive trading days. The Company had 11,244,988 of public warrants and 7,333,333 of private placement warrants held by the CP Sponsor (as defined below), to purchase Class A common stock at $ 11.50 per share at the Closing, which remain outstanding at December 31, 2022 and 2021. See Note 12 — Equity for additional information regarding the terms of public and private placement warrants. 14. Related Party Transactions Conyers Park and the Transactions In May 2019, Conyers Park II Sponsor LLC, an affiliate of Centerview Capital Management, LLC and Conyers Park’s sponsor prior to the Merger (“CP Sponsor”) purchased 11,500,000 of Conyers Park’s Class B ordinary shares for an aggregate purchase price of $ 25,000 in cash, or approximately $ 0.002 per share. In June 2019, CP Sponsor transferred 25,000 shares to each of four individuals, including a current member of the board of directors of the Company. At the time of the Closing, the 11,250,000 shares of Conyers Park Class B common stock, par value $ 0.0001 per share, then held by CP Sponsor and its directors automatically converted into shares of the Company's Class A common stock. CP Sponsor also purchased 7,333,333 private placement warrants for a purchase price of $ 1.50 per whole warrant, or $ 11,000,000 in the aggregate, in private placement transactions that occurred simultaneously with the closing of the Conyers Park’s initial public offering and related over-allotment option. As a result of the Closing, each private placement warrant entitles CP Sponsor to purchase one share of the Company's Class A common stock at $ 11.50 per share. Concurrent with the execution of the Merger Agreement, Conyers Park entered into the subscription agreements with certain investors (collectively, the “Subscription Agreements”), pursuant to which, among other things, Conyers Park agreed to issue and sell in a private placement shares of Conyers Park Class A common stock for a purchase price of $ 10.00 per share. Certain of the Advantage Sponsors or their affiliates agreed to purchase an aggregate of 34,410,000 shares of Conyers Park Class A common stock. Conyers Park also entered into a stockholders agreement (the “Stockholders Agreement”) with CP Sponsor, Topco, and certain of the Advantage Sponsors and their affiliates (collectively, the “Stockholder Parties”). The Stockholders Agreement provides, among other things, that the Stockholder Parties agree to cast their votes such that the Company’s board of directors is constituted as set forth in the Stockholders Agreement and the Merger Agreement and will have certain rights to designate directors to the Company’s board of directors, in each case, on the terms and subject to the conditions therein. Additionally, Conyers Park entered into a Registration Rights Agreement with CP Sponsor, Topco, the Advantage Sponsors and their affiliates and the other parties thereto, pursuant to which the Company has agreed to register for resale certain shares of Class A common stock and other equity securities that are held by the parties thereto from time to time. Investment in Unconsolidated Affiliates During the years ended December 31, 2022, 2021, and 2020, the Company recognized revenues of $ 14.3 million, $ 18.1 million, and $ 19.6 million, respectively, from the parent company of an investment in unconsolidated affiliates. Accounts receivable from this client were $ 1.7 million and $ 2.4 million as of December 31, 2022 and 2021, respectively. Long-term Debt Certain funds managed by CVC Credit Partners, which is part of the same network of companies providing investment management advisory services operating under the CVC brand as CVC Capital Partners, act as lenders under the Company’s Term Loan Facility. The funds managed by CVC Credit Partners held zero and $ 6.2 million of the aggregate principal outstanding under the Term Loan Facility as of December 31, 2022 and 2021, respectively. Loans to Karman Topco L.P. Advantage Sales & Marketing Inc., an indirect wholly-owned subsidiary of the Company, entered into loan agreements with Topco, pursuant to which Topco has borrowed various amounts totaling $ 6.0 million from Advantage Sales & Marketing Inc. to facilitate the payment to certain former associates for their equity interests in Topco. On September 1, 2020, Advantage Sales & Marketing Inc. entered into a new loan agreement with Topco consolidating all outstanding amounts under the prior agreements. Pursuant to the new loan agreement Topco borrowed $ 6.0 million at an interest rate of 0.39 % per annum. This loan matures on December 31, 2023 and is pre-payable at any time without penalty. 97 15. Income Taxes The (benefit from) provision for income taxes is as follows: Year Ended December 31, 2022 2021 2020 (in thousands) Current tax expense (benefit) Federal $ 23,351 $ 22,085 $ ( 9,106 ) State 8,148 7,667 4,710 Foreign 13,918 13,877 13,422 Total current tax expense 45,417 43,629 9,026 Deferred tax (benefit) expense Federal ( 129,055 ) ( 16,007 ) ( 6,501 ) State ( 59,512 ) 5,827 868 Foreign ( 2,187 ) 168 ( 8,724 ) Total deferred tax benefit ( 190,754 ) ( 10,012 ) ( 14,357 ) Total (benefit from) provision for income taxes $ ( 145,337 ) $ 33,617 $ ( 5,331 ) A reconciliation of the Company's effective income tax rate as compared to the federal statutory income tax rate is as follows: Year Ended December 31, 2022 2021 2020 Statutory U.S. rate 21.0 % 21.0 % 21.0 % State tax, net of federal tax benefit 2.7 % 11.7 % ( 2.4 )% Foreign tax, net of federal tax benefit ( 0.2 )% 5.3 % 1.1 % Goodwill impairment ( 14.0 )% — — Disallowed executive compensation ( 0.1 )% 2.3 % ( 3.2 )% Equity-based compensation — ( 2.4 )% ( 10.4 )% Meals and entertainment ( 0.1 )% 1.6 % ( 0.7 )% Contingent consideration fair value adjustment — ( 1.8 )% ( 1.3 )% Fair value of warrant liability 0.3 % 0.2 % ( 1.6 )% Work opportunity tax credit 0.2 % ( 2.5 )% 0.4 % Other ( 0.2 )% 1.5 % 0.1 % Effective tax rate 9.6 % 36.9 % 3.0 % The geographic components of income (loss) before income taxes are as follows: Year Ended December 31, 2022 2021 2020 (in thousands) U.S. sources $ ( 1,544,387 ) $ 65,202 $ ( 203,526 ) Non-U.S. sources 21,758 25,964 23,125 (Loss) income before income taxes $ ( 1,522,629 ) $ 91,166 $ ( 180,401 ) 98 Net deferred tax liabilities consist of the following: December 31, (in thousands) 2022 2021 Deferred tax assets Accrued liabilities $ 68,016 $ 78,711 Interest expense 53,320 37,335 Right-of-use liabilities 14,356 9,790 Net operating losses 7,904 10,193 Transaction expenses 7,649 8,192 Contingent liabilities 3,903 7,768 Insurance reserves 2,522 2,138 Acquired intangible assets, including goodwill 1,487 1,182 Social security tax deferral — 6,382 Other 8,293 4,534 Total deferred tax assets 167,450 166,225 Deferred tax liabilities Acquired intangible assets, including goodwill 413,728 608,316 Interest rate caps 12,079 2,419 Right-of-use assets 10,044 6,218 Debt issuance costs 7,532 9,629 Restructuring expenses 3,427 4,788 Depreciation 2,397 2,968 Other 8,545 7,397 Total deferred tax liabilities 457,752 641,735 Less: deferred income tax asset valuation allowances ( 5,360 ) ( 6,853 ) Net deferred tax liabilities $ 295,662 $ 482,363 December 31, (in thousands) 2022 2021 Reported as: Noncurrent deferred tax asset $ 2,211 $ 802 Noncurrent deferred tax liabilities 297,873 483,165 Net deferred tax liabilities $ 295,662 $ 482,363 The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) that was signed into law on March 27, 2020 allows employers to defer payment of a portion of payroll taxes otherwise due on wages paid between the enactment date and December 31, 2020 and remit the deferred payroll taxes in equal amounts on December 31, 2022 and 2021. Under this provision of the CARES Act, the Company has recorded the tax impact of $ 6.4 million as a deferred tax asset as of December 31, 2021 and no remaining balance as of December 31, 2022. On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (“IRA”), which, among other things, imposes a new corporate alternative minimum tax and an excise tax on stock buybacks. The Company did no t have any stock buybacks during the year ended December 31, 2022. The Company held cash and cash equivalents in foreign subsidiaries of $ 81.8 million and $ 86.2 million as of December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, the undistributed earnings of the Company’s foreign subsidiaries are $ 196.4 million and $ 164.1 million, respectively. The Company has not recorded a deferred tax liability related to undistributed earnings of its foreign subsidiaries as of December 31, 2022, except for a $ 2.8 million of deferred tax liability recorded as of December 31, 2022 for unremitted earnings in Canada with respect to which the Company no longer has an indefinite reinvestment assertion. Taxes have not been provided on the remaining $ 125.1 million of undistributed foreign earnings. The incremental tax liability associated with these earnings is expected to be immaterial. The Company evaluates its deferred tax assets, including a determination of whether a valuation allowance is necessary, based upon its ability to utilize the assets using a more likely than not analysis. Deferred tax assets are only recorded to the extent that they are realizable based upon past and future income. As a result of the evaluation, the Company established a valuation allowance of $ 5.4 99 million, $ 6.9 million and $ 6.7 million on its foreign affiliates’ deferred tax assets as of December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, the Company had $ 4.9 million of United States Federal Net Operating Losses (“NOL”), $ 22.6 million state NOLs, and $ 19.6 million foreign NOLs. The change of ownership provisions of the Tax Reform Act of 1986 may limit utilization of a portion of The Company’s domestic NOLs to future periods. The United States Federal NOLs expire in 2037, $16.0 million of the state NOLs expire between 2023 and 2041 and the remaining $6.6 million of the state NOLs carry forward indefinitely. Foreign NOLs of $7.7 million expire between 2024 and 2032 and the remaining $11.9 million of the foreign NOLs carry forward indefinitely. 16. Segments and Geographic Information The Company’s operations are organized into two reportable segments: sales and marketing. The operating segments reported below are the segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by the chief operating decision maker (the chief executive officer) in deciding how to allocate resources and in assessing performance. Through the Company’s sales segment, the Company serves as a strategic intermediary between consumer goods manufacturers and retailer partners and performs critical merchandizing services on behalf of both consumer goods manufacturers and retail partners. Through the Company’s marketing segment, the Company develops and executes marketing programs for manufacturers and retailers. These reportable segments are organized by the types of services provided, similar economic characteristics, and how the Company manages its business. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements; therefore, no additional information is produced or included herein. The Company and its chief operating decision maker evaluate performance based on revenues and operating (loss) income. (in thousands) Sales Marketing Total Year Ended December 31, 2022 Revenues $ 2,507,017 $ 1,542,725 $ 4,049,742 Depreciation and amortization $ 161,385 $ 71,690 $ 233,075 Operating loss $ ( 1,323,192 ) $ ( 116,214 ) $ ( 1,439,406 ) Year Ended December 31, 2021 Revenues $ 2,323,884 $ 1,278,414 $ 3,602,298 Depreciation and amortization $ 170,076 $ 69,965 $ 240,041 Operating income $ 182,529 $ 47,519 $ 230,048 Year Ended December 31, 2020 Revenues $ 2,060,593 $ 1,095,078 $ 3,155,671 Depreciation and amortization $ 171,569 $ 67,029 $ 238,598 Operating income $ 63,305 $ 3,701 $ 67,006 Revenues and long-lived assets by services provided in geographic region are as follows: Year Ended December 31, (in thousands) 2022 2021 2020 Revenues North America $ 3,562,168 $ 3,153,768 $ 2,792,238 International 487,574 448,530 363,433 Total revenues $ 4,049,742 $ 3,602,298 $ 3,155,671 December 31, (in thousands) 2022 2021 Long-Lived Assets North America $ 60,071 $ 53,284 International 10,827 10,412 Total long-lived assets $ 70,898 $ 63,696 North American revenues were primarily services provided in the U.S. representing revenues of $ 3.6 billion, $ 3.0 billion, and $ 2.7 billion during the years ended December 31, 2022, 2021, and 2020, respectively. The classification “International” primarily includes the Company’s operation in the U.K., Germany, the Netherlands and Japan. 100 17. Redeemable Noncontrolling Interests The Company is party to a put and call option agreement with respect to the common securities that represent the remaining noncontrolling interest from a majority-owned subsidiary, which was established through a majority-owned international joint venture during the year ended December 31, 2021. The put and call option agreement representing 20 % of the total outstanding noncontrolling equity interest of that subsidiary may be exercised at the discretion of the noncontrolling interest holder by providing written notice to the Company beginning in 2026 and expiring in 2028 . The redemption value of the put and call option agreement is based on a multiple of the majority-owned subsidiary’s earnings before interest, taxes, depreciation and amortization subject to certain adjustments. The noncontrolling interest is subject to a put option that is outside of the Company’s control and is presented as redeemable non-controlling interest in the temporary equity section of the Consolidated Balance Sheets. The Company recorded its redeemable noncontrolling interest at fair value on the date of the related business combination transaction and recognizes changes in the redemption value at the end of each reporting period. The carrying value of the redeemable noncontrolling interest was $ 3.7 million as of December 31, 2022. Changes in redeemable noncontrolling interest for the years ended December 31, 2022 and 2021, are as follows: (in thousands) Balance at January 1, 2021 $ — Fair value at acquisition 1,804 Net income attributable to redeemable noncontrolling interests 91 Foreign currency translation adjustment ( 2 ) Balance at December 31, 2021 1,893 Fair value at acquisition 1,987 Net income attributable to redeemable noncontrolling interests 215 Dividend distribution ( 223 ) Foreign currency translation adjustment ( 126 ) Balance at December 31, 2022 $ 3,746 During the year ended December 31, 2022, the Company acquired one sales business which included a put option exercisable by the 20 % shareholder that allows such shareholder to sell its 20 % noncontrolling interest to the Company for a multiple of the acquired subsidiary’s adjusted earnings. As the put option is outside of the Company’s control, the estimated value of the 20 % noncontrolling interest is presented as a redeemable noncontrolling interest outside of permanent equity on the Consolidated Balance Sheets. The fair value of the redeemable noncontrolling interest and put option at the acquisition date was valued based on a mix of the income approach for determining the value of the redeemable noncontrolling interest and market approach for determining the most advantageous redemption point for the put option using a Monte Carlo simulation method. The fair value assigned to this interest is estimated using Level 3 inputs based on unobservable inputs. 18. Commitments and Contingencies Litigation The Company is involved in various legal matters that arise in the ordinary course of its business. Some of these legal matters purport or may be determined to be class and/or representative actions, or seek substantial damages, or penalties. The Company has accrued amounts in connection with certain legal matters, including with respect to certain of the matters described below. There can be no assurance, however, that these accruals will be sufficient to cover such matters or other legal matters or that such matters or other legal matters will not materially or adversely affect the Company’s financial position, liquidity, or results of operations. Employment Matters The Company has also been involved in various litigation, including purported class or representative actions with respect to matters arising under the California Labor Code and Private Attorneys General Act. The Company has retained outside counsel to represent it in these matters and is vigorously defending its interests. Commercial Matters The Company has also been involved in various litigation matters and arbitrations with respect to commercial matters arising with clients, vendors and third-party sellers of businesses. The Company has retained outside counsel to represent it in these matters and is vigorously defending its interests. 101 Legal Matters Related to Take 5 USAO and FBI Voluntary Disclosure and Investigation Related to Take 5 The Company voluntarily disclosed to the United States Attorney’s Office and the Federal Bureau of Investigation certain misconduct occurring at Take 5, a line of business that the Company closed in July 2019. The Company intends to cooperate in this and any other governmental investigations that may arise in connection with the Take 5 Matter. At this time, the Company cannot predict the ultimate outcome of any investigation related to the Take 5 Matter and is unable to estimate the potential impact such an investigation may have on the Company. Arbitration Proceedings Related to Take 5 In August 2019, as a result of the Take 5 Matter, the Company provided a written indemnification claim notice to the sellers of Take 5 (the “Take 5 Sellers”) seeking monetary damages (including interest, fees and costs) based on allegations of breach of the asset purchase agreement (the “Take 5 APA”), as well as fraud. In September 2019, the Take 5 Sellers initiated arbitration proceedings against the Company, alleging breach of the Take 5 APA as a result of the Company’s decision to terminate the operations of the Take 5 business, and seeking monetary damages equal to all unpaid earn-out payments under the Take 5 APA (plus interest, fees and costs). In 2020, the Take 5 sellers amended their statement of claim to allege defamation, relating to statements the Company made to customers in connection with terminating the operations of the Take 5 business, and seeking monetary damages for the alleged injury to their reputation. The Company filed its response to the Take 5 Sellers’ claims, and asserted indemnification, fraud and other claims against the Take 5 Sellers as counterclaims and cross-claims in the arbitration proceedings. In October 2022, the arbitrator made a final award in favor of the Company. The Company is actively pursuing the collection of this award in state court in Florida. The Take 5 Sellers have attempted to have the award vacated in the district court in Washington, D.C., and in the state court in Florida. The Company has asked the Washington, D.C. court to dismiss the petition or, in the alternative, abstain until the Florida case is resolved. The Company is currently unable to estimate if or when it will be able to collect any amounts associated with this arbitration. Other Legal Matters Related to Take 5 The Take 5 Matter may result in additional litigation against the Company, including lawsuits from clients, or governmental investigations, which may expose the Company to potential liability in excess of the amounts being offered by the Company as refunds to Take 5 clients. The Company is currently unable to determine the amount of any potential liability, costs or expenses (above the amounts already being offered as refunds) that may result from any lawsuits or investigations associated with the Take 5 Matter or determine whether any such issues will have any future material adverse effect on the Company’s financial position, liquidity, or results of operations. Although the Company has insurance covering certain liabilities, the Company cannot assure that the insurance will be sufficient to cover any potential liability or expenses associated with the Take 5 Matter. In May 2020, the Company received $ 7.7 million from its representation warranty and indemnity policy related to the Take 5 acquisition for claims related to the Take 5 Matter, the maximum aggregate recovery under the policy. Surety Bonds In the ordinary course of business, the Company is required to provide financial commitments in the form of surety bonds to third parties as a guarantee of its performance on and its compliance with certain obligations. If the Company were to fail to perform or comply with these obligations, any draws upon surety bonds issued on its behalf would then trigger the Company’s payment obligation to the surety bond issuer. The Company has outstanding surety bonds issued for its benefit of $ 16.0 million and $ 10.0 million as of December 31, 2022, and 2021, respectively. 19. Subsequent Events In January 2023, Jill Griffin resigned as the Company's Chief Executive Officer and entered into a Separation Agreement and General Release (the “Separation Agreement”), pursuant to which Ms. Griffin’s employment terminated effective as of January 16, 2023. Pursuant to the Separation Agreement, Ms. Griffin is eligible to receive severance benefits including, without limitation, continued payment of base salary for 24 months following the date of termination. In February 2023, David Peacock was appointed the Company’s Chief Executive Officer. The Company and Mr. Peacock entered into an employment agreement that provides for Mr. Peacock to receive a cash signing bonus of $ 1.3 million, a $ 3.0 million share award grant, 8,000,000 options for shares of the Company’s Class A Common Stock (at various exercise prices), and annual grants consistent with the Company’s historical equity vesting in annual installments over three years of (i) $ 1.5 million in the form of RSUs, and (ii) $ 1.5 million in the form of PSUs subject to additional vesting requirements upon the attainment of performance goals established by the Compensation Committee of the Board. 102 SCHEDULE I ADVANTAGE SOLUTIONS INC. CONDENSED REGISTRANT ONLY FINANCIAL INFORMATION CONDENSED BALANCE SHEETS December 31, (in thousands) 2022 2021 ASSETS Investment in subsidiaries $ 1,124,933 $ 2,505,506 Total assets $ 1,124,933 $ 2,505,506 LIABILITIES AND STOCKHOLDERS' EQUITY Warrant liability $ 953 $ 22,189 Total liability 953 22,189 Equity attributable to stockholders of Advantage Solutions Inc. Common stock $ 0.0001 par value, 3,290,000,000 shares authorized; 319,690,300 and 316,963,552 shares issued and outstanding as of December 31, 2022 and 2021, respectively 32 32 Additional paid-in capital 3,408,836 3,373,278 Accumulated deficit ( 2,247,109 ) ( 866,607 ) Loans to Karman Topco L.P. ( 6,363 ) ( 6,340 ) Accumulated other comprehensive loss ( 18,849 ) ( 4,479 ) Common stock in treasury, at cost; 1,610,014 shares as of December 31, 2022 ( 12,567 ) ( 12,567 ) Total equity attributable to stockholders of Advantage Solutions Inc. 1,123,980 2,483,317 Equity attributable to noncontrolling interest — — Total stockholders’ equity 1,123,980 2,483,317 Total liabilities and stockholders’ equity $ 1,124,933 $ 2,505,506 See Notes to Condensed Registrant Only Financial Statements 103 SCHEDULE I ADVANTAGE SOLUTIONS INC. CON DENSED REGISTRANT ONLY FINANCIAL INFORMATION CONDENSED STATEMENTS OF OPERATIONS Year Ended December 31, (in thousands) 2022 2021 2020 Revenues $ — $ — $ — Cost of revenues — — — Impairment of goodwill and indefinite-lived assets — — — Selling, general, and administrative expenses — — — Recovery from Take 5 — — — Depreciation and amortization — — — Total expenses — — — Operating income — — — Other (income) expenses: Change in fair value of warrant liability ( 21,236 ) 955 13,363 Interest expense, net — — — Total other (income) expenses ( 21,236 ) 955 13,363 Income (loss) before income taxes and equity in net income of subsidiaries 21,236 ( 955 ) ( 13,363 ) Provision for income taxes — — — Net income (loss) before equity in net income of subsidiaries 21,236 ( 955 ) ( 13,363 ) Equity in net (loss) income of subsidiaries ( 1,401,738 ) 55,449 ( 162,443 ) Net (loss) income attributable to subsidiaries ( 1,380,502 ) 54,494 ( 175,806 ) Other comprehensive (loss) income, net of tax equity in comprehensive (loss) income of subsidiaries ( 14,370 ) ( 5,152 ) 8,827 Total comprehensive (loss) income $ ( 1,394,872 ) $ 49,342 $ ( 166,979 ) See Notes to Condensed Registrant Only Financial Statements 104 ADVANTAGE SOLUTIONS INC. CONDENSED REGISTRANT ONLY FINANCIAL INFORMATION NOTES TO THE CONDENSED REGISTRANT ONLY FINANCIAL STATEMENTS 1. Basis of Presentation In the registrant company only financial statements, Advantage Solutions Inc.’s (the “Registrant”) investment in subsidiaries is stated at cost plus equity in undistributed earnings of the subsidiaries during the years ended December 31, 2022 and 2021. The accompanying condensed registrant company financial statements have been prepared in accordance with Rule 12-04, Schedule 1 of Regulation S-X. A condensed statement of cash flows was not presented because Registrant’s operating activities have no cash impact and there were no investing or financing cash flow activities during the years ended December 31, 2022, 2021, and 2020. This information should be read in conjunction with the accompanying Consolidated Financial Statements. 2. Debt Restrictions Pursuant to the terms of the Senior Secured Credit Facilities and the Notes discussed in Note 7, Debt , of the Notes to the Consolidated Financial Statements, the Registrant’s subsidiaries have restrictions on their ability to pay dividends or make intercompany loans and advances to the Registrant. Since the restricted net assets of the Registrant’s subsidiaries exceed 25 % of the consolidated net assets of the Registrant and its subsidiaries, the accompanying condensed registrant company financial statements have been prepared in accordance with Rule 12-04, Schedule 1 of Regulation S-X. Advantage Sales & Marketing Inc., an indirect wholly-owned subsidiary of the Company (the “Borrower”) has obligations under the Term Loan Facility that are guaranteed by Karman Intermediate Corp. (“Holdings”) and all of the Borrower’s direct and indirect wholly owned material U.S. subsidiaries (subject to certain permitted exceptions) and Canadian subsidiaries (subject to certain permitted exceptions, including exceptions based on immateriality thresholders of aggregate assets and revenues of Canadian subsidiaries) (the “Guarantors”). The Term Loan Facility is secured by a lien on substantially all of Holdings’, the Borrower’s and the Guarantors’ assets (subject to certain permitted exceptions). The Term Loan Facility has a first- priority lien on the fixed asset collateral (equal in priority with the liens securing the Notes) and a second-priority lien on the current asset collateral (second in priority to the liens securing the Revolving Credit Facility), in each case, subject to other permitted liens. The Borrower will be required to prepay the Term Loan Facility with 100 % of the net cash proceeds of certain asset sales (such percentage subject to reduction based on the achievement of specific first lien net leverage ratios) and subject to certain reinvestment rights, 100 % of the net cash proceeds of certain debt issuances and 50 % of excess cash flow (such percentage subject to reduction based on the achievement of specific first lien net leverage ratios). The Term Loan Facility contains certain customary negative covenants, including, but not limited to, restrictions on the ability of Holdings and that of its restricted subsidiaries to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, pay dividends or make other restricted payments, sell or otherwise transfer assets or enter into transactions with affiliates. The Term Loan Facility provides that, upon the occurrence of certain events of default, the Company’s obligations thereunder may be accelerated. Such events of default will include payment defaults to the lenders thereunder, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy, insolvency, corporate arrangement, winding-up, liquidation or similar proceedings, material money judgments, change of control and other customary events of default. 105 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None