What changed in this filing

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Item 1. Financial Statements

2023-08-04 compared with 2023-05-10 · 400 added, 223 removed, 715 unchanged (47% of the section changed)

30 unchanged sentences

324,481,143 and 319,690,300 shares issued and outstanding as of

March 31, 2023 and December 31, 2022, respectively

June 30, 2023 and December 31, 2022, respectively

Additional paid in capital

3 unchanged sentences

Treasury stock, at cost;

1,610,014 shares as of March 31, 2023

1,610,014 shares as of June 30, 2023

and December 31, 2022, respectively

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except share and per share data)

4 unchanged sentences

Total operating expenses

Operating (loss) income

Operating income

Other expenses (income):

1 unchanged sentence

Interest expense, net

Total other expenses (income)

Total other expenses

(Loss) income before income taxes

1 unchanged sentence

Net (loss) income

net loss attributable to noncontrolling interest

net income (loss) attributable to noncontrolling interest

Net (loss) income attributable to stockholders of

Advantage Solutions Inc.

Other comprehensive income, net of tax:

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments

1 unchanged sentence

stockholders of Advantage Solutions Inc.

Net (loss) income per common share:

Basic (loss) earnings per common share

Diluted (loss) earnings per common share

Weighted-average number of common shares:

Weighted-average number of common shares, assuming dilution

See Notes to the Condensed Consolidated Financial Statements.

10 unchanged sentences

(in thousands, except share data)

Balance at January 1, 2023

Balance at April 1, 2023

Comprehensive (loss) income

Net (loss) income

Foreign currency translation adjustments

Total comprehensive (loss) income

Interest on loans to Karman Topco L.P.

Equity-based compensation of Karman

Shares issued under 2020 Incentive

Stock-based compensation expense

Balance at June 30, 2023

Treasury Stock

Solutions Inc.

Nonredeemable

Comprehensive

Stockholders'

Noncontrolling

Stockholders'

Income (Loss)

(in thousands, except share data)

Balance at April 1, 2022

Comprehensive income (loss)

Net income (loss)

Foreign currency translation adjustments

Total comprehensive income (loss)

Interest on loans to Karman Topco L.P.

Equity-based compensation of Karman

Shares issued under 2020 Incentive

Stock-based compensation expense

Balance at June 30, 2022

See Notes to the Condensed Consolidated Financial Statements.

Treasury Stock

Solutions Inc.

Nonredeemable

Comprehensive

Stockholders'

Noncontrolling

Stockholders'

Income (Loss)

(in thousands, except share data)

Balance at January 1, 2023

Comprehensive (loss) income

Net (loss) income

Foreign currency translation adjustments

Total comprehensive (loss) income

8 unchanged sentences

Stock-based compensation expense

Balance at March 31, 2023

Balance at June 30, 2023

Treasury Stock

13 unchanged sentences

Interest on loans to Karman Topco L.P.

Equity-based compensation of Topco

Shares issued under 2020 Employee Stock

Purchase Plan

Equity-based compensation of Karman

Shares issued under 2020 Employee

Stock Purchase Plan

Shares issued under 2020 Incentive

Stock-based compensation expense

Balance at March 31, 2022

Balance at June 30, 2022

See Notes to the Condensed Consolidated Financial Statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

(in thousands)

3 unchanged sentences

operating activities

Noncash interest expense (income)

Noncash interest income

Amortization of deferred financing fees

7 unchanged sentences

Distribution received from unconsolidated affiliates

Loss on sale of businesses and classification of assets held for sale

Loss on sale of businesses and assets held for sale

Gain on repurchases of Term Loan Facility debt

Loss on disposal of assets

Changes in operating assets and liabilities, net of effects from

purchases of businesses:

divestitures and purchases of businesses:

Accounts receivable, net

4 unchanged sentences

Other accrued expenses and other liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

1 unchanged sentence

Purchase of property and equipment

Proceeds from divestiture

Net cash used in investing activities

2 unchanged sentences

Payments on lines of credit

Proceeds from issuance of long-term debt

Proceeds from government loans for COVID-19 relief

Principal payments on long-term debt

Repurchases from the Term Loan Facility

Repurchases of Term Loan Facility debt

Proceeds from issuance of common stock

3 unchanged sentences

Holdback payments

Net cash used in financing activities

Redemption of noncontrolling interest

Net cash (used in) provided by financing activities

Net effect of foreign currency changes on cash

17 unchanged sentences

The Condensed Consolidated Balance Sheet at December 31, 2022 was derived from the audited Consolidated Balance Sheet at that date and does not include all the disclosures required by GAAP.

In the opinion of management, all adjustments which are of a normal recurring nature and necessary for a fair statement of the results as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 have been reflected in the condensed consolidated financial statements.

In the opinion of management, all adjustments which are of a normal recurring nature and necessary for a fair statement of the results as of June 30, 2023 and for the three and six months ended June 30, 2023 and 2022 have been reflected in the condensed consolidated financial statements.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2022 and the related footnotes thereto.

Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period.

Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period.

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 Stockholders’

These reclassifications had no impact on previously reported Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive (Loss) Income, and Consolidated Statements of Stockholders’

Revenue Recognition

11 unchanged sentences

Disaggregated revenues were as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

8 unchanged sentences

Deferred revenues are recognized as revenues when the related services are performed for the client.

Revenues recognized during t he three months ended March 31, 2023 that were included in Deferred revenues as of December 31, 2022 were $ 12.8 million .

Revenues recognized during the three months ended March 31, 2022 that were included in Deferred revenues as of December 31, 2021 were $ 21.6 million.

Held for Sale

In April 2023, the Company entered into an agreement and sold a portion of its sales reporting unit resulting in classification of certain assets and liabilities as held for sale as of March 31, 2023.

The total assets and liabilities of the sales reporting unit disposal group that have met the classification of held for sale in the Company’s Condensed Consolidated Balance Sheet are as follows:

Revenues recognized during t he three and six months ended June 30, 2023 that were included in Deferred revenues as of December 31, 2022 were $ 5.3 million and $ 18.1 million, respectively .

Revenues recognized during the three and six months ended June 30, 2022 that were included in Deferred revenues as of December 31, 2021 were $ 6.2 million and $ 27.9 million, respectively.

Divestitures and Acquisitions

2023 Divestitures

The Company recognized a loss on the sale of businesses of $ 1.1 million and $ 17.7 million for the three and six months ended June 30, 2023, respectively, as a component of “Selling, general, and administrative expenses”

in the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.

The Company determined that the sale of the businesses did not meet the criteria for classification as discontinued operations.

During the three months ended June 30, 2023, the Company sold a portion of its sales reporting unit that was previously classified as held for sale and received $ 12.8 million of proceeds.

The proceeds are net of transaction fees, holdbacks, and the estimated fair value of contingent consideration based on financial metrics of the portion of the sales reporting unit sold, which has a maximum potential achievement of $ 2.0 million.

2022 Acquisitions

During the six months ended June 30, 2022, the Company acquired a sales business and two marketing businesses.

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 results of operations of each acquired business have been included in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) since its respective date of acquisition.

The aggregate purchase price for the acquisitions referenced above was $ 68.9 million, which includes $ 67.6 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 18 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, $ 0.8 million is deductible for tax purposes.

The fair values of the identifiable assets and liabilities of the acquisitions completed during the six months ended June 30, 2022, as of the applicable acquisition dates, are as follows:

(in thousands)

March 31, 2023

Consideration:

Fair value of contingent consideration

Total consideration

Recognized amounts of identifiable assets acquired and liabilities

Accounts receivable

Inventory and other assets

Property and equipment

Intangible assets

Total assets held for sale

Identifiable intangible assets

Accounts payable

Other long-term liabilities

Total liabilities held for sale

Assets and liabilities to be disposed of by the sale are classified as held for sale if the carrying amount is principally expected to be recovered through a sale rather than through continuing use.

The classification occurs when the disposal group is available for immediate sale and the sale is probable.

These criteria are generally met when an agreement to sell exists, or management has committed to a plan to sell the assets within one year.

Disposal groups are measured at the lower of carrying amount or fair value less costs to sell, and long-lived assets included within the disposal group are not depreciated or amortized.

The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less costs to sell is reported as an adjustment to the carrying value of the

disposal group.

The Company determined that the disposal groups classified as held for sale do not meet the criteria for classification as discontinued operations.

During the three months ended March 31, 2023, the Company recorded a loss of $ 11.7 million to remeasure the disposal group to fair value plus costs to sell as a component of “Selling, general, and administrative expenses”

in the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income .

Intangible Assets

Deferred tax liabilities and other

Total liabilities

Total identifiable net assets

Goodwill arising from acquisitions

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)

Client relationships

The operating results of the businesses acquired during the six months ended June 30, 2022 contributed total revenues of $ 8.0 million and $ 8.5 million in the three and six months ended June 30, 2022, respectively.

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 three and six months ended June 30, 2022, the Company incurred immaterial amounts in transaction costs related to the acquisitions described above.

These costs have been included in “Selling, general, and administrative expenses”

in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Goodwill and Intangible Assets

Changes in goodwill for the six months ended June 30, 2023 are as follows:

(in thousands)

Balance at January 1, 2022

Measurement period adjustments

Impairment charge

Foreign exchange translation effects

Balance at December 31, 2022

Measurement period adjustments

Foreign exchange translation effects

Balance at June 30, 2023

Accumulated impairment losses related to goodwill were $ 2,019.5 million as of June 30, 2023 and December 31, 2022 , of which, $ 1,927.7 million and $ 91.8 million were for the Company's sales and marketing units respectively.

The following tables set forth information for intangible assets:

March 31, 2023

June 30, 2023

(amounts in thousands)

19 unchanged sentences

Total other intangible assets

Amortization of intangible assets was $ 49.7 million and $ 50.3 million for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, estimated future amortization expense of the Company’s existing intangible assets are as follows:

Amortization of intangible assets was $ 49.5 million and $ 50.7 million for the three months ended June 30, 2023 and 2022, respectively, and $ 99.3 million and $ 100.9 million for the six months ended June 30, 2023 and

2022, respectively.

As of June 30, 2023, estimated future amortization expense of the Company’s finite-lived intangible assets are as follows:

(in thousands)

8 unchanged sentences

Long-term debt, net of current portion

As of March 31, 2022, the Company had $ 1.3 billion of debt outstanding under the Term Loan Facility (as defined in the Annual Report on Form 10-K filed March 1, 2023 for the year ended December 31, 2022 (the “2022 Annual Report”) ) and $ 775.0 million of debt outstanding under the Notes (as defined in the 2022 Annual Report) with maturity dates of October 28, 2027 and November 15, 2028 , respectively.

The Company was in compliance with all of its affirmative and negative covenants under the Term Loan Facility and Notes as of March 31, 2023.

As of June 30, 2023, the Company had $ 1.2 billion of debt outstanding under the Term Loan Facility and $ 775.0 million of debt outstanding under the Notes (both as defined in the Annual Report on Form 10-K filed March 1, 2023 for the year ended D ecember 31, 2022 (the “2022 Annual Report”) with maturity dates of October 28, 2027 and November 15, 2028 , respectively.

Term Loan Facility bears interest at a floating rate of Term SOFR plus an applicable margin of 4.50 % per annum.

Interest on the Notes is payable semi-annually in arrears at a rate of 6.50 % per annum.

The Company was in compliance with all of its affirmative and negative covenants under the Term Loan Facility and Notes as of June 30, 2023.

In addition, the Company is required to repay the principal under the Term Loan Facility in the greater amount of its excess cash flow, as such term is defined in the agreement governing the Term Loan Facility, or $ 13.3 million, per annum, in quarterly payments.

The Company made the minimum quarterly principal payments of $ 3.3 million in each of the three months ended March 31, 2023 and 2022.

Additionally, the Company voluntarily repurchased an aggregate $ 2.0 million principal amount of its Term Loan Facility during the three months ended March 31, 2023.

The Company made the minimum quarterly principal payments of $ 3.3 million and $ 6.6 million during the three and six months ended June 30, 2023 and 2022, respectively.

No payments under the excess cash flow calculation were required in such periods.

As of March 31, 2023, the Company had no borrowings under the Revolving Credit Facility (as defined in the 2022 Annual Report).

In May 2023 (the “Second Lien Amendment Effective Date”), the Company amended the Term Loan Facility to replace the U.S.

Dollar LIBOR provisions with SOFR, effective June 30, 2023.

The Company voluntarily repurchased an aggregate $ 52.4 million and $ 54.4 million principal amount of its Term Loan Facility during the three and six months ended June 30, 2023, respectively.

The Company recognized a gain on the repurchase of $ 4.7 million and $ 5.0 million for the three and six months ended June 30, 2023, respectively, as a component of “Interest expense, net”

in the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.

As of June 30, 2023, the Company had no borrowings under the Revolving Credit Facility (as defined in the 2022 Annual Report).

All borrowings under the Revolving Credit Facility are subject to the satisfaction of certain customary conditions.

Borrowings under the credit agreement bear interest at a floating rate, which at the option may be either (i) a base rate or Canadian Prime Rate plus an applicable margin of 0.75 %, 1.00 %, or 1.25 % per annum or (ii) Term SOFR or Alternative Currency Spread plus an applicable margin of 1.75 %, 2.00 % or 2.25 % per annum.

The Company is required to pay a commitment fee ranging from 0.250 % to 0.375 % per annum in respect of the average daily unused commitments under the Revolving Credit Facility.

7 unchanged sentences

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.

March 31, 2023

June 30, 2023

(in thousands)

16 unchanged sentences

Interest Rate Cap Agreements

The Company had interest rate cap contracts with an aggregate notional value of principal of $ 650.0 million as of March 31, 2023 and December 31, 2022, respectively, from various financial institutions to manage the Company’s exposure to interest rate movements on variable rate credit facilities.

The fair value of the Company’s outstanding interest rate caps of $ 39.6 million and $ 47.5 million were included in “Prepaid expenses and other current assets”

in the Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, respectively, with changes in fair value recognized as a component of “Interest expense, net”

The Company had interest rate cap contracts with an aggregate notional value of principal of $ 650.0 million as of June 30, 2023 and December 31, 2022, respectively, from various financial institutions to manage the Company’s exposure to interest rate movements on variable rate credit facilities.

In April 2023, the Company entered into two interest rate collar transactions in an aggregate notional amount of $ 300.0 million.

Both collars have maturity dates of April 5, 2026.

The fair value of the Company’s outstanding interest rate caps and collars of $ 44.0 million and $ 47.5 million were included in “Prepaid expenses and other current assets”

in the Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022, respectively, with changes in fair value recognized as a component of “Interest expense, net”

in the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.

During the three months ended March 31, 2023 and 2022, the Company recorded a gain of $ 1.9 million and a gain of $ 21.0 million, respectively, within Interest expense , net, related to changes in the fair value of its derivative instruments.

During the three months ended June 30, 2023 and 2022, the Company recorded a gain of $ 11.4 million and a gain of $ 5.6 million, respectively, within Interest expense , net, related to changes in the fair value of its derivative

During the six months ended June 30, 2023 and 2022, the Company recorded a gain of $ 9.5 million and a gain of $ 26.6 million, respectively, within Interest expense , net, related to changes in the fair value of its derivative instruments.

Contingent Consideration Liabilities

2 unchanged sentences

in the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.

As of March 31, 2023, the maximum potential payment outcomes were $ 109.5 million.

As of June 30, 2023, the maximum potential payment outcomes were $ 78.0 million.

The following table summarizes the changes in the carrying value of estimated contingent consideration liabilities:

9 unchanged sentences

Carrying Value

Balance at March 31, 2023

Balance at June 30, 2023

Term Loan Facility

9 unchanged sentences

Beginning February 2023, an officer of the Company has served as a member of the board of directors of a client of the Company.

The Company recognized $ 0.8 million of revenues from such client during the three months ended March 31, 2023.

Accounts receivable from this client were $ 0.6 million as of March 31, 2023.

The Company recognized $ 1.1 million and $ 2.0 million of revenues from such client during the three and six months ended June 30, 2023, respectively.

Accounts receivable from this client were $ 0.6 million as of June 30, 2023.

Investment in Unconsolidated Affiliates

During the three months ended March 31, 2023 and 2022, the Company recognized revenues of $ 3.7 million and $ 3.8 million, respectively, from a parent company of an unconsolidated affiliate.

Accounts receivable from this client were $ 1.9 million and $ 1.7 million as of March 31, 2023 and December 31, 2022, respectively.

The Company’s effective tax rates were 13.9 % and 34.0 % for the three months ended March 31, 2023 and 2022, respectively.

The effective tax rate is based upon the estimated income or loss before taxes for the year, by

jurisdiction, and adjusted for estimated permanent tax adjustments.

The fluctuation in the Company’s effective tax rate was primarily due to a difference in projected book income or loss of each jurisdiction used in the annual effective tax rate and the application of the shortfall of $ 2.6 million of stock-based compensation for the three months ended March 31, 2023.

During the three months ended June 30, 2023 and 2022, the Company recognized revenues of $ 4.5 million and $ 3.8 million, respectively, from a parent company of an unconsolidated affiliate.

During the six months ended June 30, 2023 and 2022, the Company recognized revenues of $ 8.3 million and $ 7.6 million, respectively, from the parent company of an unconsolidated affiliate.

Accounts receivable from the parent company of an unconsolidated affiliate were $ 2.4 million and $ 1.7 million as of June 30, 2023 and December 31, 2022, respectively.

The Company’s effective tax rates were 5.0 % and 26.4 % for the three months ended June 30, 2023 and 2022, respectively.

The effective tax rate is based upon the estimated income or loss before taxes for the year, by jurisdiction, and adjusted for estimated permanent tax adjustments.

The fluctuation in the Company’s effective tax rate was primarily due to the three month pretax book income/loss differences and the application of the shortfall of $ 0.8 million of stock-based compensation for the three months ended June 30, 2023, compared to the shortfall of $ 0.3 million of stock-based compensation for the three months ended June 30, 2022.

The Company’s effective tax rates were 12.7 % and 32.8 % for the six months ended June 30, 2023 and 2022, respectively.

The fluctuation in the Company’s effective tax rate was primarily due to a difference in projected book income/loss used in the annual effective tax rate, the six month pretax book income/loss differences and the application of the shortfall of $ 3.5 million of stock-based compensation for the six months ended June 30, 2023, compared to the shortfall of $ 1.4 million of stock-based compensation for the six months ended June 30, 2022.

The Company’s operations are organized into two reportable segments:

8 unchanged sentences

(in thousands)

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Depreciation and amortization

Operating loss

Three Months Ended March 31, 2022

Operating income

Three Months Ended June 30, 2022

Depreciation and amortization

Operating income

(in thousands)

Six Months Ended June 30, 2023

Depreciation and amortization

Operating income

Six Months Ended June 30, 2022

Depreciation and amortization

Operating income

Commitments and Contingencies

3 unchanged sentences

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.

The Company is involved in various litigation and arbitration matters, including purported class or representative actions with respect to matters arising under the California Labor Code and Private Attorneys General Act, and commercial disputes with clients, vendors and third-party sellers of businesses.

In April 2018, the Company acquired the business of Take 5 Media Group (“Take 5”).

As a result of an investigation into that business in 2019 that identified certain misconduct, the Company terminated all operations of the Take 5 in July 2019, including the use of its associated trade names and the offering of its services to its clients and offered refunds to clients of collected revenues attributable to the period after the Company’s acquisition.

As a result of an investigation into that business in 2019 that identified certain misconduct, the Company terminated all operations of Take 5 in July 2019 and offered refunds to clients of collected revenues attributable to the period after the Company’s acquisition.

The Company refers to the foregoing as the Take 5 Matter.

1 unchanged sentence

The Company intends to cooperate in this and any other governmental investigations that may arise in connection with the Take 5 Matter.

In August 2019, the Company requested monetary indemnification from the sellers of Take 5 (including interest, fees and costs) based on allegations of breach of the asset purchase agreement, as well as fraud.

In October 2022, an arbitrator made a final award in favor of the Company.

The Company is currently unable to estimate if or when it will be able to collect any amounts associated with this arbitration.

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 offered by the Company as refunds to Take 5 clients.

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 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 previously 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.

In June 2023, the Company received $ 1.7 million in insurance proceeds with respect to the arbitration dispute involving the Take 5 Matter.

Stock-Based Compensation

3 unchanged sentences

The Company recognized stock-based compensation expense and equity-based compensation expense associated with the Common Series C Units of Karman Topco L.P.

of $ 9.1 million and $ 7.8 million during the three months ended March 31, 2023 and 2022, respectively.

The related deferred tax benefit for stock-based compensation recognized was $ 2.0 million and $ 1.5 million for the three months ended March 31, 2023 and 2022, respectively.

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Restricted share-based unit awards

Other share-based awards

Total share-based compensation before tax

Total share-based compensation expense included in net income

Performance Restricted Stock Units

15 unchanged sentences

January 1, 2021—December 31, 2021

The following table summarizes the PSU activity for the three months ended March 31, 2023:

The following table summarizes the PSU activity for the six months ended June 30, 2023:

Performance Share Units

3 unchanged sentences

PSU performance adjustment

Outstanding at March 31, 2023

Outstanding at June 30, 2023

Restricted Stock Units

1 unchanged sentence

The RSUs are generally scheduled to vest over three years and are subject to the provisions of the agreement under the Plan.

During the three months ended March 31, 2023, the following activities involving RSUs occurred under the Plan:

During the six months ended June 30, 2023, the following activities involving RSUs occurred under the Plan:

Number of RSUs

2 unchanged sentences

Outstanding at January 1, 2023

Outstanding at March 31, 2023

As of March 31, 2023, the total remaining unrecognized compensation cost related to RSUs amounted to $ 41.8 million, which is expected to be amortized over the weighted-average remaining requisite service periods of 2.5 years.

Outstanding at June 30, 2023

As of June 30, 2023, the total remaining unrecognized compensation cost related to RSUs amounted to $ 36.3 million, which is expected to be amortized over the weighted-average remaining requisite service periods of 2.3 years.

Stock Options

During the three months ended March 31, 2023, the following activities involving stock options occurred under the Plan:

During the six months ended June 30, 2023, the following activities involving stock options occurred under the Plan:

Stock Options

1 unchanged sentence

Outstanding at January 1, 2023

Outstanding at March 31, 2023

The fair value of the employee stock options granted was estimated using the following weighted average assumptions for the three months ended:

Cancelled/Expired

Outstanding at June 30, 2023

The fair value of the employee stock options granted was estimated using the following weighted average assumptions for the six months ended:

Exercise price

3 unchanged sentences

Expected term

As of March 31, 2023, the Company had approximately $ 7.2 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 4.6 years .

The intrinsic value of all outstanding options as of March 31, 2023 was zero based on the market price of the Company's common stock of $ 1.58 per share.

As of June 30, 2023, the Company had approximately $ 9.0 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 3.9 years .

The aggregate intrinsic value of all outstanding options as of June 30, 2023 was $ 1.0 million.

The intrinsic value of a stock option is the amount by which the market value of the underlying common stock exceeds the exercise price of the option.

There were no options exercised during the six months ended June 30, 2023 and 2022.

Earnings Per Share

5 unchanged sentences

The following is a reconciliation of basic and diluted net earnings per common share:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except share and earnings per share data)

8 unchanged sentences

Weighted average common shares outstanding

Performance Stock Units

Restricted Stock Units

Restricted and Performance Stock Units

Employee stock purchase plan and stock options

1 unchanged sentence

Diluted (loss) earnings per common share

The Company had 18,578,321 warrants to purchase Class A common stock at $ 11.50 per share outstanding at March 31, 2023 and 2022, respectively, which have been excluded in the calculation of diluted earnings per common share, as the weighted average market price of the common stock during the three months ended March 31, 2023 and 2022 did not exceed the exercise price of the warrants.

The Company had 18,578,321 warrants to purchase Class A common stock at $ 11.50 per share outstanding at June 30, 2023 and 2022, respectively, which have been excluded in the calculation of diluted earnings per common share, as the weighted average market price of the common stock during the three and six months ended June 30, 2023 and 2022 did not exceed the exercise price of the warrants.

In accordance with the treasury method the weighted average shares outstanding assuming dilution include the incremental effect of stock-based awards, except when such effect would be antidilutive.

Stock-based awards of 2.2 million weighted-average shares were outstanding for the three months ended March 31, 2023, but were not included in the computation of diluted loss per common share, because the net loss position of the Company made them antidilutive.

In addition, PSUs related to 4.8 million and 4.4 million shares assuming achievement of the Target Goals were outstanding for the three months ended March 31, 2023 and 2022, respectively, but were not included in the computation of diluted (loss) earnings per common share, as the performance targets were not yet met.

Subsequent Events

In April 2023, the Company entered into two interest rate collar transactions in an aggregate notional amount of $ 300.0 million.

Both collars have maturity dates of April 5, 2026 .

In April 2023, a majority owned subsidiary of the Company operating in Japan entered into a loan agreement for an aggregate of approximately $ 1.5 million with a 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.

Half of the loan bears an interest rate of 1.70 % per annum until the maturity date of April 30, 2043 .

The remainder of the loan bears 0.80 % per annum until April 18, 2026 , at which time the loan will bear an interest rate of 1.70 % until the maturity date.

Stock-based awards of 1.2 million and 1.7 million weighted-average shares were outstanding for the three and six months ended June 30, 2023, respectively, but were not included in the computation of diluted loss per common share, because the net loss position of the Company made them antidilutive.

In addition, PSUs related to an immaterial number of shares assuming achievement of the Target Goals were outstanding for the six months ended June 30, 2023 and 2022, respectively, but were not included in the computation of diluted (loss) earnings per common share, as the performance targets were not yet met during the six months ended June 30, 2023 and 2022, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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sales and marketing.

Through our sales segment, which generated approximately 60.6% and 64.7% of our total revenues in the three months ended March 31, 2023 and 2022, respectively, we offer headquarter sales representation services to consumer goods manufacturers, for whom we prepare and present to retailers a business case to increase distribution of manufacturers’

Through our sales segment, which generated approximately 59.2% and 63.1% of our total revenues in the six months ended June 30, 2023 and 2022, respectively, we offer headquarter sales representation services to consumer goods manufacturers, for whom we prepare and present to retailers a business case to increase distribution of manufacturers’

products and optimize how they are displayed, priced and promoted.

We also make in-store merchandising visits for both manufacturer and retailer clients to ensure the products are adequately stocked and properly displayed.

Through our marketing segment, which generated approximately 39.4% and 35.3% of our total revenues in the three months ended March 31, 2023 and 2022, respectively, we help brands and retailers reach consumers through two main categories within the marketing segment.

Through our marketing segment, which generated approximately 40.8% and 36.9% of our total revenues in the six months ended June 30, 2023 and 2022, respectively, we help brands and retailers reach consumers through two main categories within the marketing segment.

The first and largest category is our retail experiential business, also known as in-store sampling or demonstrations, where we manage highly customized large-scale sampling programs (both in-store and online) for leading retailers.

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While mixed by services and geography, the spending reductions impacted all of our services and markets.

Globally, the most impacted services were our in-store sampling and demonstration services which have continued to improve through the first quarter of 2023.

Our financial performance for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 includes:

Globally, the most impacted services were our in-store sampling and demonstration services, which have continued to improve through the second quarter of 2023.

Our financial performance for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022 includes:

Revenues increased by $56.0 million, or 5.7%, to $1,037.1 million;

Operating loss increased by $31.3 million, or 135.9%, to $8.3 million;

Operating income decreased by $6.0 million, or 21.2%, to $22.3 million;

Net loss increased by $11.5 million, or 313.4%, to $7.8 million

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Adjusted EBITDA decreased by $4.1 million, or 3.8%, to $104.2 million

Our financial performance for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 includes:

Revenues increased by $153.2 million, or 8.1%, to $2,049.0 million;

Operating income decreased by $37.3 million, or 72.7%, to $14.0 million;

Net loss increased by $76.7 million, or 361.8% to $55.5 million;

Adjusted Net Income decreased by $39.6 million, or 44.1%, to $50.3 million;

Adjusted EBITDA decreased by $8.8 million, or 4.3%, to $196.3 million.

Factors Affecting Our Business and Financial Reporting

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Many of our acquisition agreements include contingent consideration arrangements, which are generally based on the achievement of financial performance thresholds by the operations attributable to the acquired businesses.

The contingent consideration arrangements are based upon our valuations of the acquired businesses and are intended to share the investment risk with the sellers of such businesses if projected financial results are not achieved.

The contingent consideration arrangements are based upon our valuations of the acquired businesses and are intended to share the investment risk with the

sellers of such businesses if projected financial results are not achieved.

The fair values of these contingent consideration arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates.

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As a result of the acquisition of our business by Karman Topco L.P.

(“Topco”) on July 25, 2014 (the “2014 Topco Acquisition”), we acquired significant intangible assets, the value of which is amortized, on a straight-line basis, over 15 years from the date of the 2014 Topco

Acquisition, unless determined to be indefinite-lived.

The amortization of such intangible assets recorded in our consolidated financial statements has a significant impact on our operating income (loss) and net income (loss).

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For example, if we completed an acquisition on July 1, 2022 for a business that included a contingent consideration arrangement, we would consider revenues from the acquired business from July 1, 2022 to June 30, 2023 to be acquired revenues.

We generally consider growth

attributable to the financial performance of an acquired business after the 12-month anniversary of the date of acquisition to be organic.

We generally consider growth attributable to the financial performance of an acquired business after the 12-month anniversary of the date of acquisition to be organic.

In limited cases, when the acquisition of an acquired business does not include a contingent consideration arrangement, or we otherwise do not separately track the financial performance of the acquired business due to operational integration, we consider the revenues that the business generated in the 12 months prior to its acquisition to be our acquired revenues for the 12 months following its acquisition, and any differences in revenues actually generated during the 12 months after its acquisition to be organic.

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Other overhead costs include information technology, professional services fees, including accounting and legal services, and other general corporate expenses.

Additionally, included in selling, general and administrative expenses are costs associated with the changes in fair value of the contingent consideration of acquisitions and other acquisition-related costs.

Acquisition-related costs are comprised of fees related to change of equity ownership, transaction costs, professional fees, due diligence and integration activities.

Additionally, included in selling, general and administrative expenses are costs associated with various internal reorganization activities, including professional fees, lease exit costs, severance, and nonrecurring compensation costs, and the changes in fair value of the contingent consideration of acquisitions and other acquisition-related costs.

Acquisition-related costs are comprised

of fees related to change of equity ownership, transaction costs, professional fees, due diligence and integration activities.

Other (Income) Expenses

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Change in fair value of warrant liability represents a non-cash (income) expense resulting from a fair value adjustment to warrant liability with respect to the private placement warrants.

Based on the availability of sufficient observable information, we determine 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.

Based on the availability of sufficient observable information, we determine 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.

Interest Expense

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Depreciation Expense

Depreciation expense relates to the property and equipment that we own, which represented less than 1% of our total assets at March 31, 2023 and 2022, respectively.

Depreciation expense relates to the property and equipment that we own, which represented less than 1% of our total assets at June 30, 2023 and 2022, respectively.

Income tax expense and our effective tax rates can be affected by many factors, including state apportionment factors, our acquisitions, tax incentives and credits available to us, changes in judgment regarding our ability to realize our deferred tax assets, changes in our worldwide mix of pre-tax losses or earnings, changes in existing tax laws and our assessment of uncertain tax positions.

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Our principal sources of liquidity are cash flows from operations, borrowings under the Revolving Credit Facility, and other debt.

Our principal uses of cash are operating expenses, working capital requirements, acquisitions and repayment of debt.

Our principal uses of cash are operating expenses, working capital requirements and repayment of debt.

Adjusted Net Income

Adjusted Net Income is a non-GAAP financial measure.

Adjusted Net Income means net loss before (i) impairment of goodwill and indefinite-lived assets, (ii) amortization of intangible assets, (iii) equity-based compensation of Karman Topco L.P., (iv) changes in fair value of warrant liability, (v) fair value adjustments of contingent consideration related to acquisitions, (vi) acquisition-related expenses, (vii) costs associated with COVID-19, net of benefits received, (viii) net income attributable to noncontrolling interest, (ix) reorganization and restructuring expenses, (x) litigation expenses, (xi) loss on disposal of assets, (xii) gain on repurchases from the

Term Loan Facility, (xiii) costs associated with the Take 5 Matter, (xvi) other adjustments that management believes are helpful in evaluating our operating performance, and (xv) related tax adjustments.

Adjusted Net Income means net (loss) income before (i) amortization of intangible assets, (ii) equity-based compensation of Karman Topco L.P., (iii) changes in fair value of warrant liability, (iv) fair value adjustments of contingent consideration related to acquisitions, (v) acquisition-related expenses, (vi) costs associated with COVID-19, net of benefits received, (vii) net income attributable to noncontrolling interest, (viii) reorganization and restructuring expenses, (ix) litigation expenses, (x) loss on disposal of assets, (xi) gain on repurchases of Term Loan Facility debt, (xii) recovery from Take 5, (xiii) costs associated with the Take 5 Matter, (xiv) other adjustments that management believes are helpful in evaluating our operating performance, and (xv) related tax adjustments.

We present Adjusted Net Income because we use it as a supplemental measure to evaluate the performance of our business in a way that also considers our ability to generate profit without the impact of items that we do not believe are indicative of our operating performance or are unusual or infrequent in nature and aid in the comparability of our performance from period to period.

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Adjusted EBITDA and Adjusted EBITDA by segment are supplemental non-GAAP financial measures of our operating performance.

Adjusted EBITDA means net (loss) income before (i) interest expense, net, (ii) (benefit from) provision for income taxes, (iii) depreciation, (iv) impairment of goodwill and indefinite-lived assets, (v) amortization of intangible assets, (vi) equity-based compensation of Karman Topco L.P., (vii) changes in fair value of warrant liability, (viii) stock-based compensation expense, (ix) fair value adjustments of contingent consideration related to acquisitions, (x) acquisition-related expenses, (xi) loss on disposal of assets, (xii) costs associated with COVID-19, net of benefits received, (xiii) EBITDA for economic interests in investments, (xiv) reorganization and restructuring expenses, (xv) litigation expenses, (xvi) costs associated with the Take 5 Matter and (xvii) other adjustments that management believes are helpful in evaluating our operating performance.

Adjusted EBITDA means net (loss) income before (i) interest expense, net, (ii) (benefit from) provision for income taxes, (iii) depreciation, (iv) amortization of intangible assets, (v) equity-based compensation of Karman Topco L.P., (vi) changes in fair value of warrant liability, (vii) stock-based compensation expense, (viii) fair value adjustments of contingent consideration related to acquisitions, (ix) acquisition-related expenses, (x) loss on disposal of assets, (xi) costs associated with COVID-19, net of benefits received, (xii) EBITDA for economic interests in investments, (xiii) reorganization and restructuring expenses, (xiv) litigation expenses, (xv) recovery from Take 5, (xvi) costs associated with the Take 5 Matter and (xvii) other adjustments that management believes are helpful in evaluating our operating performance.

We present Adjusted EBITDA and Adjusted EBITDA by segment because they are key operating measures used by us to assess our financial performance.

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Neither Adjusted EBITDA nor Adjusted EBITDA by segment should be considered as an alternative for Net income, our most directly comparable measure presented on a GAAP basis.

Results of Operations for the Three Months Ended March 31, 2023 and 2022

The following table sets forth items derived from the Company’s consolidated statements of operations for the three months ended March 31, 2023 and 2022 in dollars and as a percentage of total revenues.

Three Months Ended March 31,

Non-GAAP financial measures are subject to inherent limitations as they reflect the exercise of judgments by management about which expense and income are excluded or included in determining these non-GAAP financial measures.

Additionally, other companies may calculate non-GAAP measures differently, or may use other measures to calculate their financial performance, and therefore our non-GAAP measures may not be directly comparable to similarly titled measures of other companies.

Results of Operations for the Three and Six Months Ended June 30, 2023 and 2022

The following table sets forth items derived from the Company’s consolidated statements of operations for the three and six months ended June 30, 2023 and 2022 in dollars and as a percentage of total revenues.

Three Months Ended June 30,

Six Months Ended June 30,

(amounts in thousands)

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Total expenses

Operating (loss) income

Other (income) expenses:

Operating income

Other expenses (income):

Change in fair value of warrant liability

Interest expense, net

Total other expenses (income)

Total other expenses

(Loss) income before income taxes

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(1) Adjusted Net Income and Adjusted EBITDA are financial measures that are not calculated in accordance with GAAP.

For a discussion of our presentation of Adjusted Net Income and Adjusted EBITDA and

reconciliations of Net income to Adjusted Net Income and Adjusted EBITDA, see “

For a discussion of our presentation of Adjusted Net Income and Adjusted EBITDA and reconciliations of Net income to Adjusted Net Income and Adjusted EBITDA, see “

—Non-GAAP Financial Measures .”

Comparison of the Three Months Ended March 31, 2023 and 2022

Three Months Ended March 31,

Comparison of the Three Months Ended June 30, 2023 and 2022

Three Months Ended June 30,

(amounts in thousands)

Total revenues

Total revenues increased by $97.2 million, or 10.6%, during the three months ended March 31, 2023, as compared to the three months ended March 31, 2022.

The sales segment revenues increased $21.4 million during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, of which $4.2 million were revenues from acquired businesses.

Excluding revenues from acquired businesses and unfavorable foreign exchange rates of $8.4 million, the segment experienced an increase of $25.6 million in organic revenues primarily due to growth in our retail merchandising services and European joint venture.

The marketing segment revenues increased $75.8 million during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, of which $7.9 million were revenues from acquired businesses.

Excluding revenues from acquired businesses and unfavorable foreign exchange rates of $4.7 million, the segment experienced an increase of $72.6 million in organic revenues.

The increase in revenues was primarily due to an increase in our in-store product demonstration and sampling services, partially offset by a decrease in certain of our digital services.

Total revenues increased by $56.0 million, or 5.7%, during the three months ended June 30, 2023, as compared to the three months ended June 30, 2022.

Excluding revenues from divested businesses, net of acquired businesses, and unfavorable foreign exchange rates, revenues increased 7.7%.

The sales segment revenues decreased $4.3 million during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, of which $14.6 million were revenues from divested businesses, net of acquired businesses.

Excluding revenues from divested businesses and unfavorable foreign exchange rates of $0.7 million, the segment experienced an increase of $11.0 million in organic revenues primarily due to an increase in our retail merchandising services, pricing realization, and our European joint venture, partially offset by an intentional client exit.

The marketing segment revenues increased $60.3 million during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, of which $1.4 million were revenues from divested businesses.

Excluding revenues from divested businesses and unfavorable foreign exchange rates of $2.8 million, the segment experienced an increase of $64.5 million in organic revenues.

The increase in revenues was primarily due to an

increase in our in-store sampling and demonstration services from event volume and pricing realization, partially offset by a decrease in our digital services.

Cost of Revenues

Cost of revenues as a percentage of revenues for the three months ended March 31, 2023 was 87.8%, as compared to 85.9% for the three months ended March 31, 2022.

The increase as a percentage of revenues was largely attributable to the change in the revenue mix of our services and the inflationary impact in recruiting and wages.

Cost of revenues as a percentage of revenues for the three months ended June 30, 2023 was 87.2%, as compared to 85.8% for the three months ended June 30, 2022.

The increase as a percentage of revenues was largely attributable to inflationary costs pressures and the change in the revenue mix of our services.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of revenues for the three months ended March 31, 2023 was 7.4%, compared to 5.3% for the three months ended March 31, 2022, primarily due to $16.5 million of non-cash loss on disposal of assets and adjustments to assets held for sale and $10.5 million increase in reorganization charges, primarily related to the transition of certain of our executive officers.

Selling, general and administrative expenses as a percentage of revenues for the three months ended June 30, 2023 was 5.1%, compared to 5.4% for the three months ended June 30, 2022.

The decrease as a percentage of revenues was primarily due to $5.5 million decrease in acquisition-related expense and $3.7 million decrease in non-cash stock-based compensation expense, partially offset by $5.5 million increase in costs associated with our internal reorganization activities.

Depreciation and Amortization Expense

Depreciation and amortization expense was $57.1 million for the three months ended March 31, 2023 compared to $57.8 million for the three months ended March 31, 2022, which stayed relatively consistent year over year.

Operating (Loss) Income

Three Months Ended March 31,

Depreciation and amortization expense was $56.7 million for the three months ended June 30, 2023 compared to $58.4 million for the three months ended June 30, 2022.

The decrease is largely attributable to a decrease in the amortization expenses from our trade names and the divested businesses.

Operating Income

Three Months Ended June 30,

(amounts in thousands)

Total operating (loss) income

The increase in operating loss during the three months ended March 31, 2023 was due to one-time charges in selling, general and administrative expenses as described above.

Total operating income

In the sales segment, the decrease in operating income during the three months ended June 30, 2023 was primarily due to the increase in costs of revenues as described above.

In the marketing segment, the increase in operating income during the three months ended June 30, 2023 was due to growth in revenues as described above.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability was $0.1 million of non-cash gain for the three months ended March 31, 2023 compared to $15.4 million of non-cash gain resulting from a fair value adjustment to warrant liability with respect to the private placement warrants for the three months ended March 31, 2022.

Change in fair value of warrant liability was $0.1 million of non-cash gain for the three months ended June 30, 2023 compared to $4.9 million of non-cash gain resulting from a fair value adjustment to warrant liability with respect to the private placement warrants for the three months ended June 30, 2022.

Interest Expense, net

Interest expense, net increased by $35.3 million, or 297.1%, to $47.2 million for the three months ended March 31, 2023, from $11.9 million for the three months ended March 31, 2022.

The increase in interest expense was primarily due to the change in fair value in our derivative instruments in the prior year, which lowered the prior year expense, and higher interest rates in 2023.

Interest expense, net increased by $2.3 million, or 8.1%, to $30.5 million for the three months ended June 30, 2023, from $28.2 million for the three months ended June 30, 2022.

The increase in interest expense was primarily due to the higher interest rates, partially offset by change in fair value in our derivative instruments and gain associated with the repurchases of Term Loan Facility debt for the three months ended June 30, 2023.

(Benefit from) Provision for Income Taxes

Benefit from taxes was $7.7 million for the three months ended March 31, 2023 as compared to $9.0 million of provision for income taxes for the three months ended March 31, 2022.

The fluctuation was primarily attributable to a pre-tax loss during the three months ended March 31, 2023 compared to a pre-tax income during the three months ended March 31, 2022.

Benefit from income taxes was $0.4 million for the three months ended June 30, 2023 as compared to $1.3 million of provision for income taxes for the three months ended June 30, 2022.

The fluctuation was primarily

attributable to a pre-tax loss during the three months ended June 30, 2023 compared to a pre-tax income during the three months ended June 30, 2022.

Net (Loss) Income

Net loss was $47.7 million for the three months ended March 31, 2023, compared to net income of $17.5 million for the three months ended March 31, 2022.

The decrease in net income was primarily driven by the increase in interest expense, decrease in operating income as described above, offset by the benefit from income taxes.

Net loss was $7.8 million for the three months ended June 30, 2023, compared to net income of $3.7 million for the three months ended June 30, 2022.

The increase in net loss was primarily driven by the decrease in operating income and the increase in interest expense as described above.

Adjusted Net Income

The decrease in Adjusted Net Income for the three months ended March 31, 2023 was attributable to the increase in interest expense, net and decrease in non-cash gain from the change in fair value of warrant liability as described above.

The decrease in Adjusted Net Income for the three months ended June 30, 2023 was attributable to the decrease in operating income and the increase in interest expense, net partially offset by the decrease in the provision for income taxes.

For a reconciliation of Adjusted Net Income to Net income, see “

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Adjusted EBITDA and Adjusted EBITDA by Segment

Three Months Ended March 31,

Three Months Ended June 30,

(amounts in thousands)

Total Adjusted EBITDA

Adjusted EBITDA decreased by $4.7 million, or 4.8%, to $92.1 million for the three months ended March 31, 2023, from $96.7 million for the three months ended March 31, 2022.

Adjusted EBITDA decreased by $4.1 million, or 3.8%, to $104.2 million for the three months ended June 30, 2023, from $108.3 million for the three months ended June 30, 2022.

In the sales segment, the decrease was primarily attributable to the increase in cost of revenues as described above.

In the marketing segment, the decrease was driven largely by continued headwinds in our higher-margin digital services, partially offset by the growth in revenues from the in-store sampling and demonstration services as described above.

In the marketing segment, the increase was driven largely by the growth in revenues from the in-store sampling and demonstration services as described above, partially offset by continued headwinds in our higher-margin digital services.

For a reconciliation of Adjusted EBITDA to Net income, see “—

Non-GAAP Financial Measures .”

Comparison of the Six Months Ended June 30, 2023 and 2022

Six Months Ended June 30,

(amounts in thousands)

Total revenues

Total revenues increased by $153.2 million, or 8.1%, during the six months ended June 30, 2023, as compared to the six months ended June 30, 2022.

Excluding revenues from divested businesses, net of acquired businesses, and unfavorable foreign exchange rates, revenues increased 9.3%.

The sales segment revenues increased $17.1 million during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, of which $10.4 million were revenues from divested businesses, net of acquired businesses.

Excluding revenues from divested businesses and unfavorable foreign exchange rates of $9.1 million, the segment experienced an increase of $36.6 million in organic revenues primarily due to growth in our retail merchandising services and European joint venture, partially offset by an intentional client exit.

The marketing segment revenues increased $136.1 million during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, of which $4.8 million were revenues from acquired businesses, net of divested businesses.

Excluding revenues from acquired and divested businesses and unfavorable foreign exchange rates of $7.6 million, the segment experienced an increase of $138.9 million in organic revenues.

The increase in revenues was primarily due to an increase in our in-store sampling and demonstration services, partially offset by a decrease in certain of our digital services.

Cost of Revenues

Cost of revenues as a percentage of revenues for the six months ended June 30, 2023 was 87.5%, as compared to 85.9% for the six months ended June 30, 2022.

The increase as a percentage of revenues was largely attributable to inflationary costs pressures and the change in the revenue mix of our services.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of revenues for the six months ended June 30, 2023 was 6.3%, compared to 5.3% for the six months ended June 30, 2022.

The increase as a percentage of revenues was primarily due to $14.9 million increase in non-cash loss on disposal of assets and adjustments to assets held for sale coupled with $16.0 million increase in internal reorganization activities, partially offset by $9.9 million decrease in acquisition-related expenses.

Depreciation and Amortization Expense

Depreciation and amortization expense was $113.8 million for the six months ended June 30, 2023 compared to $116.2 million for the six months ended June 30, 2022.

The decrease is largely attributable to a decrease in the amortization expenses from our trade names and the divested businesses.

Operating Income

Six Months Ended June 30,

(amounts in thousands)

Total operating income

The decrease in operating income during the six months ended June 30, 2023 was due to one-time charges in selling, general and administrative expenses as described above, partially offset by recovery from Take 5.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability increased by $20.4 million due to non-cash loss for the six months ended June 30, 2022 resulting from a fair value adjustment to warrant liability with respect to the private placement warrants.

Interest Expense, net

Interest expense, net increased by $37.6 million, or 93.8%, to $77.7 million for the six months ended June 30, 2023, from $40.1 million for the six months ended June 30, 2022.

(Benefit from) Provision for Income Taxes

Benefit from income taxes was $8.1 million for the six months ended June 30, 2023 as compared to $10.4 million of provision for income taxes for the six months ended June 30, 2022.

The fluctuation was primarily attributable to a pre-tax loss during the six months ended June 30, 2023 compared to a pre-tax income during the six months ended June 30, 2022.

Net (Loss) Income

Net loss was $55.5 million for the six months ended June 30, 2023, compared to net income of $21.2 million for the six months ended June 30, 2022.

The increase in net loss was primarily driven by the decrease in operating income and the increase in interest expense as described above.

Adjusted Net Income

The decrease in Adjusted Net Income for the six months ended June 30, 2023 was attributable to the increase in interest expense, net and the decrease in operating income as described above, partially offset by the benefit from income taxes.

For a reconciliation of Adjusted Net Income to Net (loss) income, see “

Non-GAAP Financial Measures.”

Adjusted EBITDA and Adjusted EBITDA by Segment

Six Months Ended June 30,

(amounts in thousands)

Total Adjusted EBITDA

Adjusted EBITDA decreased by $8.8 million, or 4.3%, to $196.3 million for the six months ended June 30, 2023, from $205.1 million for the six months ended June 30, 2022.

In the sales segment, the decrease was primarily attributable to the increase in cost of revenues as described above.

For a reconciliation of Adjusted EBITDA to Net (loss) income, see “—

Non-GAAP Financial Measures .”

Non-GAAP Financial Measures

Adjusted Net Income is a non-GAAP financial measure.

Adjusted Net Income means net (loss) income before (i) amortization of intangible assets, (ii) impairment of goodwill and indefinite-lived assets (iii) equity-based compensation of Karman Topco L.P., (iv) changes in fair value of warrant liability, (v) fair value adjustments of contingent consideration related to acquisitions, (vi) acquisition-related expenses, (vii) costs associated with COVID-19, net of benefits received, (viii) net income attributable to noncontrolling interest, (ix) reorganization and restructuring expenses, (x) litigation expenses, (xi) loss on disposal of assets, (xii) gain on repurchases from the Term Loan Facility, (xiii) costs associated with the Take 5 Matter, (xiv) other adjustments that management believes are helpful in evaluating our operating performance, and (xv) related tax adjustments.

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A reconciliation of Adjusted Net Income to Net income is provided in the following table:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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Fair value adjustments related to contingent consideration

related to acquisitions (c)

Acquisition-related expenses (d)

Reorganization and restructuring expenses (e)

Loss on disposal of assets (g)

Amortization of intangible assets (h)

Costs associated with COVID-19, net of benefits received (i)

Gain on repurchases from the Term Loan Facility (m)

Costs associated with the Take 5 Matter (j)

Tax adjustments related to non-GAAP adjustments (k)

related to acquisitions (b)

Acquisition-related expenses (c)

Reorganization and restructuring expenses (d)

Litigation expenses (recovery) (e)

Loss on disposal of assets (f)

Amortization of intangible assets (g)

Costs associated with COVID-19, net of benefits received (h)

Gain on repurchases of Term Loan Facility debt (i)

Recovery from Take 5 (j)

Costs associated with the Take 5 Matter (k)

Tax adjustments related to non-GAAP adjustments (l)

Adjusted Net Income

Adjusted EBITDA and Adjusted EBITDA by segment are supplemental non-GAAP financial measures of our operating performance.

Adjusted EBITDA means net (loss) income before (i) interest expense, net, (ii) (benefit from) provision for income taxes, (iii) depreciation, (iv) amortization of intangible assets, (v) impairment of goodwill and indefinite-lived assets (vi) equity-based compensation of Karman Topco L.P., (vii) changes in fair value of warrant liability, (viii) stock based compensation expense, (ix) fair value adjustments of contingent consideration related to acquisitions, (x) acquisition-related expenses, (xi) loss on disposal of assets, (xii) costs associated with COVID-19, net of benefits received, (xiii) EBITDA for economic interests in investments, (xiv) reorganization and restructuring expenses, (xv) litigation expenses, (xvi) costs associated with the Take 5 Matter and (xvii) other adjustments that management believes are helpful in evaluating our operating performance.

Adjusted EBITDA means net (loss) income before (i) interest expense, net, (ii) (benefit from) provision for income taxes, (iii) depreciation, (iv) amortization of intangible assets, (v) equity-based compensation of Karman Topco L.P., (vi) changes in fair value of warrant liability, (vii) stock based compensation expense, (viii) fair value adjustments of contingent consideration related to acquisitions, (ix) acquisition-related expenses, (x) loss on disposal of assets, (xi) costs associated with COVID-19, net of benefits received, (xii) EBITDA for economic interests in investments, (xiii) reorganization and restructuring expenses, (xiv) litigation expenses, (xv) recovery from Take 5, (xvi) costs associated with the Take 5 Matter and (xvii) other adjustments that management believes are helpful in evaluating our operating performance.

We present Adjusted EBITDA and Adjusted EBITDA by segment because they are key operating measures used by us to assess our financial performance.

These measures adjust for items that we believe do not reflect the ongoing operating performance of our business, such as certain noncash items, unusual or infrequent items or items that change from period to period without any material relevance to our operating performance.

We evaluate these measures in conjunction with our results according to GAAP because we believe they provide a more complete understanding of factors and trends affecting our business than GAAP measures alone.

Furthermore, the agreements governing our indebtedness contain covenants and other tests based on measures substantially similar to

Adjusted EBITDA.

We evaluate these measures in conjunction with our results according to GAAP because we believe they provide a more complete

understanding of factors and trends affecting our business than GAAP measures alone.

Furthermore, the agreements governing our indebtedness contain covenants and other tests based on measures substantially similar to Adjusted EBITDA.

Neither Adjusted EBITDA nor Adjusted EBITDA by segment should be considered as an alternative for our Net income, our most directly comparable measure presented on a GAAP basis.

A reconciliation of Adjusted EBITDA to Net income is provided in the following table:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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Change in fair value of warrant liability

Stock-based compensation expense (b)

Fair value adjustments related to contingent consideration

related to acquisitions (c)

Acquisition-related expenses (d)

Loss on disposal of assets (g)

related to acquisitions (b)

Acquisition-related expenses (c)

Loss on disposal of assets (f)

Reorganization and restructuring expenses (d)

Litigation expenses (recovery) (e)

Costs associated with COVID-19, net of benefits received (h)

Recovery from Take 5 (j)

Costs associated with the Take 5 Matter (k)

Stock-based compensation expense (m)

EBITDA for economic interests in investments (l)

Reorganization and restructuring expenses (e)

Costs associated with COVID-19, net of benefits received (i)

Costs associated with the Take 5 Matter (j)

Adjusted EBITDA

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Sales Segment

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Operating (loss) income

Operating income

Depreciation and amortization

Equity-based compensation of Karman Topco L.P.

Stock-based compensation expense (b)

Fair value adjustments related to contingent consideration

related to acquisitions (c)

Acquisition-related expenses (d)

Loss on disposal of assets (g)

EBITDA for economic interests in investments (l)

Reorganization and restructuring expenses (e)

Costs associated with COVID-19, net of benefits received (i)

related to acquisitions (b)

Acquisition-related expenses (c)

Loss on disposal of assets (f)

Reorganization and restructuring expenses (d)

Litigation expenses (recovery) (e)

Costs associated with COVID-19, net of benefits received (h)

Stock-based compensation expense (m)

EBITDA for economic interests in investments (n)

Sales Segment Adjusted EBITDA

Marketing Segment

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Operating (loss) income

Operating income

Depreciation and amortization

Equity-based compensation of Karman Topco L.P.

Stock-based compensation expense (b)

Fair value adjustments related to contingent consideration

related to acquisitions (c)

Acquisition-related expenses (d)

Loss on disposal of assets (g)

EBITDA for economic interests in investments (l)

Reorganization and restructuring expenses (e)

Costs associated with COVID-19, net of benefits received (i)

Costs associated with the Take 5 Matter (j)

related to acquisitions (b)

Acquisition-related expenses (c)

Loss on disposal of assets (f)

Reorganization and restructuring expenses (d)

Litigation recovery (e)

Costs associated with COVID-19, net of benefits received (h)

Recovery from Take 5 (j)

Costs associated with the Take 5 Matter (k)

Stock-based compensation expense (m)

EBITDA for economic interests in investments (n)

Marketing Segment Adjusted EBITDA

Represents expenses related to (i) equity-based compensation expense associated with grants of Common Series D Units of Topco made to one of the equity holders of Topco and (ii) equity-based compensation expense associated with the Common Series C Units of Topco.

Represents non-cash compensation expense related to the 2020 Incentive Award Plan and the 2020 Employee Stock Purchase Plan.

Represents adjustments to the estimated fair value of our contingent consideration liabilities related to our acquisitions.

See Note 5—

Fair Value of Financial Instruments to our unaudited condensed financial statements for the three months ended March 31, 2023 and 2022.

Represents fees and costs associated with activities related to our acquisitions and reorganization activities, including professional fees, due diligence, and integration activities.

Fair Value of Financial Instruments to our unaudited condensed financial statements for the three and six months ended June 30, 2023 and 2022.

Represents fees and costs associated with activities related to our acquisitions and related reorganization activities, including professional fees, due diligence, and integration activities.

Represents fees and costs associated with various internal reorganization activities, including professional fees, lease exit costs, severance, and nonrecurring compensation costs.

Represents legal settlements, reserves, and expenses that are unusual or infrequent costs associated with our operating activities.

Represents losses on disposal of assets related to divestitures and losses on sale of businesses and classification of assets held for sale, less cost to sell.

Represents losses on disposal of assets related to divestitures and losses on sale of businesses and assets held for sale, less cost to sell.

Represents the amortization of intangible assets recorded in connection with the 2014 Topco Acquisition and our other acquisitions.

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and (ii) benefits received from government grants for COVID-19 relief.

Represents a gain associated with the repurchases of Term Loan Facility debt during the three and six months ended June 30, 2023.

For additional information, refer to Note 4—

Debt to our unaudited condensed financial statements for the three and six months ended June 30, 2023 and 2022.

Represents cash receipts from an insurance policy for claims related to the Take 5 Matter.

Represents costs associated with the Take 5 Matter, primarily, professional fees and other related costs.

Represents the tax provision or benefit associated with the adjustments above, taking into account the Company’s applicable tax rates, after excluding adjustments related to items that do not have a related tax impact.

Represents non-cash compensation expense related to the 2020 Incentive Award Plan and the 2020 Employee Stock Purchase Plan.

Represents additions to reflect our proportional share of Adjusted EBITDA related to our equity method investments and reductions to remove the Adjusted EBITDA related to the minority ownership percentage of the entities that we fully consolidate in our financial statements.

Represents a gain associated with the repurchases from the Term Loan Facility during the three months ended March 31, 2023.

For additional information, refer to Note 4—

Debt to our unaudited condensed financial statements for the three months ended March 31, 2023 and 2022.

Liquidity and Capital Resources

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A summary of our cash operating, investing and financing activities are shown in the following table:

Six Months Ended June 30,

(in thousands)

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Net cash used in investing activities

Net cash used in financing activities

Net cash (used in) provided by financing activities

Net effect of foreign currency fluctuations on cash

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Net Cash Provided by Operating Activities

Net cash used in operating activities during the three months ended March 31, 2023 consisted of net loss of $47.7 million adjusted for certain non-cash items, including depreciation and amortization of $57.1 million and effects of changes in working capital.

Net cash used in operating activities during the three months ended March 31, 2022 consisted of net income of $17.5 million adjusted for certain non-cash items, including depreciation and amortization of $57.8 million and effects of changes in working capital.

The increase in cash provided by operating activities during the three months ended March 31, 2023 relative to the same period in 2022 was primarily due to increased working capital requirements to stand up our services during the three months ended March 31, 2022.

Net cash provided by operating activities during the six months ended June 30, 2023 consisted of net loss of $55.5 million adjusted for certain non-cash items, including loss on disposal of assets and adjustments to assets held for sale of $17.7 million, gain on repurchases of Term Loan Facility debt of $5.0 million, depreciation and amortization of $113.8 million and effects of changes in working capital.

Net cash provided by operating activities during the six months ended June 30, 2022 consisted of net income of $21.2 million adjusted for certain non-cash items, including depreciation and amortization of $116.2 million and effects of changes in working capital.

The increase in cash provided by operating activities during the six months ended June 30, 2023 relative to the same period in 2022 was primarily due to increased working capital requirements to stand up our services during the six months ended June 30, 2022.

Net Cash Used in Investing Activities

Net cash used in investing activities during the three months ended March 31, 2023 primarily consisted of the purchase of property and equipment of $7.3 million.

Net cash used in investing activities during the three months ended March 31, 2022 primarily consisted of the purchase of businesses, net of cash acquired of $1.8 million and purchase of property and equipment of $10.4 million.

Net cash used in investing activities during the six months ended June 30, 2023 primarily consisted of the purchase of property and equipment of $18.6 million.

Net cash used in investing activities during the six months ended June 30, 2022 primarily consisted of the purchase of businesses, net of cash acquired of $67.6 million and purchase of property and equipment of $21.5 million.

Net Cash Used in Financing Activities

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The portion of the cash payment up to the acquisition date fair value of the contingent consideration liability are classified as financing outflows, and amounts paid in excess of the acquisition date fair value of that liability are classified as operating outflows.

Cash flows used in financing activities during the three months ended March 31, 2023 were primarily related to payments of contingent consideration and holdback payments of $2.5 million, repayment of principal on our Term Loan Facility of $3.4 million, repurchases from the Term Loan Facility of $1.7 million, partially offset by $1.2 million related to proceeds from the issuance of Class A common stock.

Cash flows used in financing activities during the three months ended March 31, 2022 were primarily related to borrowings of $9.3 million, and offset by repayment of $9.0 million, on our lines of credit, payment of principal on our Term Loan Facility of $3.3 million, partially offset by $1.7 million related to proceeds from the issuance of Class A common stock.

Cash flows used in financing activities during the six months ended June 30, 2023 were primarily related to repurchases of Term Loan Facility debt of $49.4 million, repayment of principal on our Term Loan Facility of $6.6 million, payments of contingent consideration and holdback payments of $3.5 million, partially offset by $1.4 million of proceed from a government loan for COVID-19 relief and $1.2 million related to proceeds from the issuance of Class A common stock.

Cash flows provided by financing activities during the six months ended June 30, 2022 were primarily related to borrowings of $67.1 million, offset by repayment of $22.0 million, on our lines of credit, payment of principal on our Term Loan Facility of $6.7 million, partially offset by $1.7 million related to proceeds from the issuance of Class A common stock.

Description of Credit Facilities

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We may use borrowings under the Revolving Credit Facility to fund working capital and for other general corporate purposes, including permitted acquisitions and other investments.

As of March 31, 2023, we had unused capacity under our Revolving Credit Facility available to us of $500.0 million, subject to borrowing base limitations (without giving effect to approximately $44.5 million of outstanding letters of credit and the borrowing base limitations for additional borrowings).

As of June 30, 2023, we had unused capacity under our Revolving Credit Facility available to us of $500.0 million, subject to borrowing base limitations (without giving effect to approximately $44.1 million of outstanding letters of credit and the borrowing base limitations for additional borrowings).

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.

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The Term Loan Facility is a term loan facility denominated in U.S.

dollars in an aggregate principal amount of $1.293 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.

dollars in an aggregate principal amount of $1.237 billion as of June 30, 2023.

Borrowings under the Term Loan Facility amortize in equal quarterly installments in an amount equal to 1.00% per annum of $1.325 billion 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 4.50% with respect to Eurodollar rate borrowings and 3.50% 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 with a repricing transaction prior to the date that is six months after the effective date of the First Lien Amendment).

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).

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On October 28, 2020, 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 Transactions, Finco merged with and into Advantage Sales & Marketing Inc.

Immediately following such issuance, Finco merged with and into Advantage Sales & Marketing Inc.

(in its capacity as the issuer of the Notes, the “Issuer”), with the Issuer continuing as the surviving entity and assuming the obligations of Finco.

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Cash and Cash Equivalents Held Outside the United States

As of March 31, 2023, and December 31, 2022, $92.2 million and $81.8 million, respectively, of our cash and cash equivalents were held by foreign subsidiaries.

As of March 31, 2023, and December 31, 2022, $25.6 million and $28.1 million, respectively, of our cash and cash equivalents were held by foreign branches.

We assessed our determination as to our indefinite reinvestment intent for certain of our foreign subsidiaries and recorded a deferred tax liability of approximately $2.8 million of withholding tax as of December 31, 2022 for unremitted earnings in Canada with respect to which we do not have an indefinite reinvestment assertion.

As of June 30, 2023, and December 31, 2022, $57.2 million and $81.8 million, respectively, of our cash and cash equivalents were held by foreign subsidiaries.

As of June 30, 2023, and December 31, 2022, $21.4 million and $28.1 million, respectively, of our cash and cash equivalents were held by foreign branches.

We assessed our determination as to our indefinite reinvestment intent for certain of our foreign subsidiaries and recorded a deferred tax liability of approximately $0.9 million of withholding tax as of June 30, 2023 for unremitted earnings in Canada with respect to which we do not have an indefinite reinvestment assertion.

We will continue to evaluate our cash needs, however we currently do not intend, nor do we foresee a need, to repatriate funds from the foreign subsidiaries except for Canada.

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These alternatives could result in higher income tax expense or increased interest expense.

We consider the majority of the undistributed earnings of our foreign subsidiaries, as of December 31, 2022, to be indefinitely reinvested and, accordingly, no provision has been made for taxes in excess of the $2.8 million noted above.

We consider the majority of the undistributed earnings of our foreign subsidiaries, as of June 30, 2023, to be indefinitely reinvested and, accordingly, no provision has been made for taxes in excess of the $0.9 million noted above.

Off-Balance Sheet Arrangements

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Critical Accounting Policies and Estimates

Our critical accounting policies and estimates are included in our 2022 Annual Report and did not materially change during the three months ended March 31, 2023.

Our critical accounting policies and estimates are included in our 2022 Annual Report and did not materially change during the six months ended June 30, 2023.

Recently Issued Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements