Advantage Solutions Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Forward-Looking Statements This Quarterly Report on Form 10-Q (this “Quarterly Report”), including the section titled “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, our business, our beliefs and our management’s assumptions. Such words as “expect,” “anticipate,” “outlook,” “could,” “target,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “should,” “may,” “assume” and “continue” as well as variations of such words and similar expressions are intended to identify such forward-looking statements, although not all forward-looking statements contain such terms. These statements are not guarantees of future performance and they involve certain risks, uncertainties and assumptions that are difficult to predict. We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecasted by our forward-looking statements. More information regarding these risks and uncertainties and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth in “Risk Factors” of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2024. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise. Executive Overview We are a leading business solutions provider to consumer goods manufacturers and retailers. We have a strong platform of essential, business critical services like headquarter sales, retail merchandising, in-store sampling, digital commerce, and shopper marketing. We generate demand for brands and retailers of all sizes, helping get the right products on the shelf — whether physical or digital — and into the hands of consumers in every way they shop. We use a scaled platform to innovate as a trusted partner with our clients, solving problems to increase their efficiency and effectiveness across a broad range of channels. Effective January 1, 2024, we revised our reportable segments to align our business strategy, and the manner in which the Chief Executive Officer, our chief operating decision maker manages assesses the performance and makes decisions regarding the allocation of resources for the Company. Our revised reportable segments consist of Branded Services, Experiential Services, and Retailer Services. We have reorganized our portfolio of businesses into a new, simplified structure that more closely aligns our business capabilities with economic buyers. As a result of this reorganization, we have formally disposed of certain business units. In addition to the business units already disposed of, there are certain other business units which are part of the overall reorganization plan that have not yet been disposed of or abandoned. We have determined that the other business units not yet disposed of met the held for sale and discontinued operations accounting criteria as of March 31, 2024 as their dispositions represent a strategic shift that has had a major effect on our operations and financial results. Refer to Note 2— Acquisitions, Divestitures, and Discontinued Operations. We continue to evaluate opportunities to further simplify our operations so we can focus more resources on our core businesses. Through our Branded Services segment, which generated approximately 39.2% and 47.1% of our revenues in the three months ended March 31, 2024 and 2023, respectively, we provide services to branded consumer goods manufacturers through three main categories: brokerage, branded merchandising and omni-commerce marketing services. Brokerage services is primarily an outsourced sales and services agency for branded consumer goods manufacturers at retailer headquarters, in-store and online. Additionally, we lead with insights to execute branded merchandising strategies for branded consumer goods manufacturers related to merchandising in-store and online to drive product sales. Our omni-commerce marketing services primarily relate to digital and field marketing services, 23 including shopper marketing, targeted advertising, interactive design and development, inventory management, application development and content management solutions. Through our Experiential Services segment, which generated approximately 35.0.% and 27.2% of our revenues in the three months ended March 31, 2024 and 2023, respectively, we help brands and retailers reach consumers and convert shoppers into buyers through in-store and online sampling and demonstrations. We manage highly customized, large-scale sampling programs for leading brands and retailers. We also manage, organize and execute special events for brands and retailers, including large-scale meetings, mobile tours, summits and festivals. Through our Retailer Services segment, which generated approximately 25.8% and 25.7% of our revenues in the three months ended March 31, 2024 and 2023, respectively, we provide end-to-end advisory, retailer merchandising and agency services to retailers. Advisory services primarily consist of consulting services related to private brand development, including coordination related to the sourcing, manufacturing, branding and distribution of private label products to the end retailer. Retailer merchandising services primarily relate to the execution of merchandising strategies, including traditional services such as interior store construction, store resets, category updates and new item implementation. Agency services primarily consist of providing marketing strategies within retail locations, including retail media networks, and analyzing shopper behavior to offer planning, execution and measurement of insight-based, retailer-specific promotions that target retailers' specific shopper base to drive product sales. Summary Our financial performance for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 includes: • Revenues decreased by $65.4 million, or 6.9%, to $879.0 million; • Operating loss from continuing operations decreased by $33.5 million, or 496.8%, to $26.8 million; • Net loss from continuing operations increased by $14.7 million to $49.1 million; • Adjusted Net Income increased by $1.1 million, or 8.3%, to $14.9 million; and • Adjusted EBITDA from continuing and discontinued operations decreased by $13.3 million, or 14.5%, to $78.8 million. Factors Affecting Our Business and Financial Reporting There are a number of factors, in addition to the deconsolidation of ASL and inflation, that affect the performance of our business and the comparability of our results from period to period including: • Organic Growth. Part of our strategy is to generate organic growth by expanding our existing client relationships, continuing to win new clients, pursuing channel expansion enhancing our service offerings, digital technology solutions, developing our international platform, delivering operational efficiencies and expanding into logical adjacencies. We believe that by pursuing these organic growth opportunities we will be able to continue to enhance our value proposition to our clients and thereby grow our business. • Acquisitions and Divestitures. We have grown our business in part by acquiring businesses, both domestic and international. Many of our acquisition agreements include contingent consideration arrangements, which are described below. We have completed acquisitions at what we believe are attractive purchase prices and have regularly structured our agreements to result in the generation of long-lived tax assets, which have in turn reduced our effective purchase prices when incorporating the value of those tax assets. We continue to look for strategic acquisitions that can be completed at attractive purchase prices. We also continue to evaluate our service offerings to ensure more focus on our mission of converting shoppers into buyers for consumer goods companies and retailers. To that end, we have disposed of certain businesses and classified others as held for sale. As part of the sales agreements for certain divestitures, we have agreed to provide certain transitional services as defined within the respective Transition Services Agreement for a period of time after sale. We continue to evaluate opportunities to further simplify our operations so we can focus more resources on our core businesses. 24 • Contingent Consideration. 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 fair values of these contingent consideration arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. For each transaction, we estimate the fair value of contingent consideration payments as part of the initial purchase price. We review and assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could differ materially from our 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 our Condensed Consolidated Statements of Operations and Comprehensive Loss. • Depreciation and Amortization. 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). Our historical acquisitions have increased, and future acquisitions likely will increase, our intangible assets. We do not believe the amortization expense associated with the intangible assets created from our purchase accounting adjustments reflect a material economic cost to our business. Unlike depreciation expense which has an economic cost reflected by the fact that we must re-invest in property and equipment to maintain the asset base delivering our results of operations, we do not have any capital re-investment requirements associated with the acquired intangible assets, such as client relationships and trade names, that comprise the majority of the finite-lived intangible assets that create our amortization expense. • Foreign Exchange Fluctuations. Our financial results are affected by fluctuations in the exchange rate between the U.S. dollar and other currencies, primarily the Canadian dollars due to our operations in such foreign jurisdictions. See also “ —Quantitative and Qualitative Disclosure of Market Risk—Foreign Currency Risk. ” • Seasonality. Our quarterly results are seasonal in nature, with the fourth fiscal quarter typically generating a higher proportion of our revenues than other fiscal quarters, as a result of higher consumer spending. We generally record slightly lower revenues in the first fiscal quarter of each year, as our clients begin to roll out new programs for the year, and consumer spending generally is less in the first fiscal quarter than other quarters. The timing of our clients’ marketing expenses, associated with marketing campaigns and new product launches, can also result in fluctuations from one quarter to another. How We Assess the Performance of Our Business Revenues Revenues related to the Branded Services segment are primarily recognized in the form of commissions, fee-for-service and cost-plus fees for providing headquarter relationship management, execution of merchandising strategies and omni-commerce marketing services. Experiential Services segment revenues are primarily recognized in the form of fee-for-service and cost-plus fees for providing in-store, digital sampling and demonstrations, where the Company manages highly customized, large-scale sampling programs for leading brands and retailers. Retailer Services segment revenues are primarily recognized in the form of commissions, fee-for-service and cost-plus fees for providing consulting services related to private brand development, the execution of merchandising strategies and marketing strategies within retailer locations, including retail media networks and analyzing shopper behavior. We analyze our financial performance, in part, by measuring revenue growth in two ways—revenue growth attributable to organic activities and revenue growth and declines attributable to acquisitions and divestitures, which we refer to as organic revenues and acquired revenues, respectively. 25 We define organic revenues as any revenues that are not acquired revenues. Our organic revenues exclude the impacts of acquisitions and divestitures, when applicable, which improves comparability of our results from period to period. In general, when we acquire a business, the acquisition includes a contingent consideration arrangement (e.g., an earn-out provision) and, accordingly, we separately track the financial performance of the acquired business. In such cases, we consider revenues generated by such a business during the 12 months following its acquisition to be acquired revenues. For example, if we completed an acquisition on July 1, 2023 for a business that included a contingent consideration arrangement, we would consider revenues from the acquired business from July 1, 2023 to June 30, 2024 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. If an 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. For example, if we completed an acquisition on July 1, 2023 for a business that did not include a contingent consideration arrangement, we would consider the amount of revenues from the acquired business from July 1, 2022 to June 30, 2023 to be acquired revenues during the period from July 1, 2023 to June 30, 2024, with any differences from that amount actually generated during the latter period to be organic revenues. All revenues generated by our acquired businesses are considered to be organic revenues after the 12-month anniversary of the date of acquisition. When we divest a business, unless otherwise presented as discontinued operations, we consider the revenues that the divested business generated in the 12 months prior to its divestiture to be subtracted from acquired revenues for the 12 months following its divestiture. For example, if we completed a divestiture on July 1, 2023 for a business, we would consider the amount of revenues from the divested business from July 1, 2022 to June 30, 2023 to be subtracted from acquired revenues during the period from July 1, 2023 to June 30, 2024. We measure organic revenue growth and acquired revenue growth by comparing the organic revenues or acquired revenues, respectively, period over period, net of any divestitures. Cost of Revenues Our cost of revenues consists of both fixed and variable expenses primarily attributable to the hiring, training, compensation and benefits provided to both full-time and part-time associates, as well as other project-related expenses. A number of costs associated with our associates are subject to external factors, including inflation, increases in market specific wages and minimum wage rates at federal, state and municipal levels and minimum pay levels for exempt roles. Additionally, when we enter into certain new client relationships, we may experience an initial increase in expenses associated with hiring, training and other items needed to launch the new relationship. Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of salaries, payroll taxes and benefits for corporate personnel. Other overhead costs include information technology, professional services fees, including accounting and legal services, and other general corporate expenses. We also incur expenses operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for general and director and officer insurance, investor relations, and related professional services. 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 costs related to our internal reorganization activities, acquisition and divestiture transactions. These transaction-related costs are comprised of fees related to change of equity ownership, professional fees, due diligence and integration or divestitures activities. 26 Impairment of Goodwill and Indefinite-lived Assets Goodwill represents the excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired in an acquisition. We test for impairment of goodwill at the reporting unit level. We generally combine components that have similar economic characteristics, nature of services, types of clients, distribution methods and regulatory environment. Changes to our operating segments effective January 1, 2024, as described in Note 8— Segments , resulted in a change to our reporting units (Branded Services, Branded Agencies, Experiential Services, Merchandising and Retailer Agencies). As a result, the Company performed the required impairment assessments directly before and immediately after the change in reporting units as of January 1, 2024. The assets and liabilities were reassigned to the applicable reporting units and allocated goodwill using the relative fair value approach. The estimated fair value of the underlying reporting units were determined based on a combination of the income and market approaches. The income approach utilizes estimates of discounted cash flows for the underlying business, which requires assumptions for growth rates, EBITDA margins, terminal growth rate, discount rate, and incremental net working capital, all of which require significant management judgment. The market approach applies market multiples derived from historical earnings data of selected guideline publicly traded companies that are first screened by industry group and then further narrowed on the reporting units' business descriptions, markets served, competitors, EBITDA margins and revenue size. The Company compared a weighted average of the output from the income and market approaches to compute the fair value of the reporting units. The assumptions in the income and market approach are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. We based our fair value estimates on assumptions we believe 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 our planned strategy, it may cause fair value to be less than the carrying amounts and result in an impairment of goodwill in the future. In conjunction with the tests performed as of January 1, 2024, each of the fair values for the reporting units tested was in excess of its carrying amount. The fair values of the Branded Agencies and Experiential Services reporting units exceeded their respective carrying values by less than 20%. As of March 31, 2024, there were no indicators of goodwill impairment. Other (Income) Expenses Change in Fair Value of Warrant Liability 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. Interest Expense Interest expense relates primarily to borrowings under our material debt agreements as described below. See “ — Liquidity and Capital Resources .” Depreciation and Amortization Amortization Expense As a result of 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. Included in our depreciation and amortization expense is amortization of acquired intangible assets. We have ascribed value to identifiable intangible assets other than goodwill in our purchase price allocations for companies we have acquired. These assets include, but are not limited to, client relationships and trade names. To the extent we ascribe value to identifiable intangible assets that have finite lives, we amortize those values over the estimated useful lives of the assets. Such amortization expense, although non-cash in the period expensed, directly impacts our results of 27 operations. It is difficult to predict with any precision the amount of expense we may record relating to future acquired intangible assets. 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, 2024 and 2023, respectively. Income Taxes Income tax expense and our effective tax rates can be affected by many factors, including state apportionment factors, our acquisition and divestiture strategy, 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. Cash Flows We have positive cash flow characteristics, as described below, due to the limited required capital investment in the fixed assets and working capital needs to operate our business in the normal course. See “ —Liquidity and Capital Resources. ” Our principal sources of liquidity are cash flows from operations, borrowings under the Revolving Credit Facility, divestitures and other debt. Our principal uses of cash are operating expenses, working capital requirements, investments in our technology platforms, acquisitions and repayment of debt. During the three months ended March 31, 2024, we entered into a definitive agreement to sell a collection of our foodservice businesses. Additionally, we classified certain assets and liabilities which are expected to be recovered through a sale transaction rather than through continuing use. We expect to use the divestiture proceeds to invest in our business, reduce debt, creating financial flexibility for opportunistic share repurchases or potential future acquisitions. Adjusted Net Income Adjusted Net Income is a non-GAAP financial measure. Adjusted Net Income means net (loss) income before (i) impairment of goodwill and indefinite-lived assets, (ii) gain on deconsolidation of subsidiaries, (iii) (gain) loss on divestitures, (iv) amortization of intangible assets, (iv) equity-based compensation of Karman Topco L.P., (vi) changes in fair value of warrant liability, (vii) fair value adjustments of contingent consideration related to acquisitions, (viii) acquisition and divestitures related expenses, (ix) costs associated with COVID-19, net of benefits received, (x) net income attributable to noncontrolling interest, (xi) reorganization expenses, (xii) litigation expenses, (xiii) deferred financing fees, (xiv) gain on repurchases of Term Loan Facility and Senior Secured Notes debt, (xv) recovery from Take 5 and costs associated with the Take 5 Matter, (xvi) other adjustments that management believes are helpful in evaluating our operating performance, and (xvii) 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. Adjusted Net Income should not be considered as an alternative for Net (loss) income, our most directly comparable measure presented on a GAAP basis. Adjusted EBITDA and Adjusted EBITDA by Segment Adjusted EBITDA and Adjusted EBITDA by Segment are supplemental non-GAAP financial measures of our operating performance. Adjusted EBITDA, inclusive of continuing and discontinuing operations, 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) gain on deconsolidation of subsidiaries, (vii) (gain) loss on divestitures, (viii) equity-based compensation of Karman Topco L.P., (ix) changes in fair value of warrant liability, (x) stock-based compensation expense, (xi) fair value adjustments of contingent consideration related 28 to acquisitions, (xii) acquisition and divestitures related expenses, (xiii) costs associated with COVID-19, net of benefits received, (xiv) EBITDA for economic interests in investments, (xv) reorganization expenses, (xvi) litigation expenses, (xvii) costs associated with (recovery from) the Take 5 Matter and (xviii) other adjustments that management believes are helpful in evaluating our operating performance. Adjusted EBITDA by Segment means, with respect to the applicable operating segment, operating income from continuing operations plus operating income from discontinued operations before (i) depreciation, (ii) impairment of goodwill and indefinite-lived assets, (iii) gain on deconsolidation of subsidiaries, (iv) (gain) loss on divestitures, (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 and divestitures related expenses, (x) costs associated with COVID-19, net of benefits received, (xi) EBITDA for economic interests in investments, (xii) reorganization expenses, (xiii) litigation expenses, (xiv) costs associated with (recovery from) the Take 5 Matter and (xv) other adjustments that management believes are helpful in evaluating our operating performance, in each case attributable to such segment. 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 non-cash 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. Neither Adjusted EBITDA nor Adjusted EBITDA by Segment should be considered as an alternative for Net (loss) income or operating income (loss), our most directly comparable measures presented on a GAAP basis. 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. Reorganization Charges Reorganization charges include severance plans designed to integrate and reduce costs intended to further improve efficiencies in operational activities and align cost structures consistent with revenue levels associated with business changes. We recorded severance expenses of $9.6 million included in “Selling, general, and administrative expenses” in the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023. 29 Results of Operations for the Three Months Ended March 31, 2024 and 2023 The following table sets forth items derived from the Company’s consolidated statements of operations for the three months ended March 31, 2024 and 2023 in dollars and as a percentage of total revenues. Three Months Ended March 31, (amounts in thousands) 2024 2023 Revenues $ 879,003 100.0 % $ 944,382 100.0 % Cost of revenues 763,872 86.9 % 826,855 87.6 % Selling, general, and administrative expenses 89,664 10.2 % 56,289 6.0 % Depreciation and amortization 51,540 5.9 % 54,494 5.8 % Income from unconsolidated investments 689 0.1 % — 0.0 % Total operating expenses 905,765 103.0 % 937,638 99.3 % Operating (loss) income from continuing operations (26,762 ) (3.0 )% 6,744 0.7 % Other expenses (income): Change in fair value of warrant liability 287 0.0 % (73 ) 0.0 % Interest expense, net 35,761 4.1 % 47,165 5.0 % Total other expenses 36,048 4.1 % 47,092 5.0 % Loss from continuing operations before income taxes (62,810 ) (7.1 )% (40,348 ) (4.3 )% Benefit from income taxes for continuing operations (13,703 ) (1.6 )% (5,978 ) (0.6 )% Net loss from continuing operations (49,107 ) (5.6 )% (34,370 ) (3.6 )% Less: net income (loss) from discontinued operations, net of tax 45,992 5.2 % (13,308 ) (1.4 )% Net loss (3,115 ) (0.4 )% (47,678 ) (5.0 )% Less: net income (loss) attributable to noncontrolling interest - discontinued operations 2,192 0.2 % (91 ) 0.0 % Net loss attributable to stockholders of Advantage Solutions Inc. $ (5,307 ) (0.6 )% $ (47,587 ) (5.0 )% Other Financial Data Adjusted Net Income (1) $ 14,912 1.7 % $ 13,773 1.5 % Adjusted EBITDA (1) $ 78,760 9.0 % $ 92,070 9.7 % (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 “ —Non-GAAP Financial Measures .” Comparison of the Three Months Ended March 31, 2024 and 2023 Revenues Three Months Ended March 31, Change (amounts in thousands) 2024 2023 $ % Branded Services $ 344,529 $ 444,862 $ (100,333 ) (22.6 %) Experiential Services 307,351 257,167 50,184 19.5 % Retailer Services 227,123 242,353 (15,230 ) (6.3 %) Total revenues from continuing operations $ 879,003 $ 944,382 $ (65,379 ) (6.9 %) Total revenues decreased by $65.4 million, or 6.9%, during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. Excluding revenues from the deconsolidation of our European joint venture, and unfavorable foreign exchange rates, revenues increased 3.0%. The Branded Services segment revenues decreased $100.3 million during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. Excluding $93.4 million revenues from the deconsolidation of our European joint venture, the segment experienced a decrease of $6.9 million in organic revenues primarily due to an intentional client resignation and timing of shipments impacting client orders, partially offset by growth in our omni-commerce marketing services. The Experiential Services segment revenues increased $50.2 million during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. Excluding unfavorable foreign exchange rates of $2.1 million, the segment experienced an increase of $52.3 million in organic revenues. The increase in revenues was primarily due to an increase in our events per day volume and price realization. 30 The Retailer Services segment revenues decreased $15.2 million during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The decrease in revenues was primarily due to a decrease in our retailer merchandising services as a result of the earlier timing for the Easter holiday and merchandising projects that were completed in prior year, partially offset by an increase in our agency services and price realization. Cost of Revenues Cost of revenues as a percentage of revenues for the three months ended March 31, 2024 was 86.9%, as compared to 87.6% for the three months ended March 31, 2023, which stayed relatively consistent. Selling, General and Administrative Expenses Selling, general and administrative expenses as a percentage of revenues for the three months ended March 31, 2024 was 10.2%, compared to 6.0% for the three months ended March 31, 2023. The increase as a percentage of revenues was primarily due to the continued investment in our support services including our technology solutions and $26.0 million increase in costs associated with our internal reorganization activities, largely related to professional fees and severance. Depreciation and Amortization Expense Depreciation and amortization expense was $51.4 million for the three months ended March 31, 2024 compared to $54.5 million for the three months ended March 31, 2023. The decrease is largely attributable to a decrease in the amortization expenses from our trade names and the divested businesses. Operating Income (Loss) from Continuing Operations Three Months Ended March 31, Change (amounts in thousands) 2024 2023 $ % Branded Services $ (16,776 ) $ 6,176 $ (22,952 ) (371.6 %) Experiential Services (5,027 ) (4,678 ) (349 ) 7.5 % Retailer Services (4,959 ) 5,246 (10,205 ) (194.5 %) Total operating (loss) income from continuing operations $ (26,762 ) $ 6,744 $ (33,506 ) (496.8 %) In the Branded Services segment, the decrease in operating income during the three months ended March 31, 2024 was primarily due to an increase in costs associated with our internal reorganization activities. In the Experiential Services segment, the increase in operating income during the three months ended March 31, 2024 was due to increase in revenues as described above offset by continued investment in our support services including our technology solutions. In the Retailer Services segment, the decrease in operating income during the three months ended March 31, 2024 was due to an increase in costs associated with our internal reorganization activities coupled with continued investment in our support services including our technology solutions. Change in Fair Value of Warrant Liability Change in fair value of warrant liability was $0.3 million of non-cash expense for the three months ended March 31, 2024 compared to $0.1 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, 2023. Interest Expense, net Interest expense, net decreased by $11.4 million, or 24.2%, to $35.8 million for the three months ended March 31, 2024, from $47.2 million for the three months ended March 31, 2023. The decrease in interest expense was primarily due to change in fair value in our derivative instruments, and lower debt balance, including as a result of repurchases of 31 certain of our Senior Secured Notes as further described in “ Liquidity and Capital Resources—Description of Credit Facilities—Senior Secured Notes ”, partially offset by higher interest rates for the three months ended March 30, 2024. (Benefit from) Provision for Income Taxes Benefit from income taxes was $13.7 million for the three months ended March 31, 2024 as compared to $6.0 million of benefit for income taxes for the three months ended March 31, 2023. The fluctuation was primarily attributable to a larger pre-tax loss during the three months ended March 31, 2024 compared to a smaller pre-tax loss during the three months ended March 31, 2023 and separately, the application of the windfall of $0.7 million of stock based compensation for the three months ended March 31, 2024, as compared to a $2.3 million shortfall for the three months ended March 31, 2023, and the release of the valuation allowance of $1.1 million related to one of the Company’s investments for the three months ended March 31, 2024. The income tax expense from discontinued operations was $12.1 million for the three months ended March 31, 2024, while the income tax benefit from discontinued operations was $1.7 million for the three months ended March 31, 2023. The income tax expense for the three months ended March 31, 2024 was impacted primarily by the sale of the Company’s foodservice businesses. The income tax benefit for the three months ended March 31, 2023 was primarily the result of pre-tax loss. Net Loss from Continuing Operations Net loss from continuing operations was $49.1 million for the three months ended March 31, 2024, compared to net loss from continuing operations of $34.4 million for the three months ended March 31, 2023. The increase in net loss from continuing operations was primarily driven increase in costs associated with the continued investment in our support services including our technology solutions and $26.0 million increase in costs associated with our internal reorganization activities, largely related to professional fees and severance. Net Income (Loss) from Discontinued Operations Net income from discontinued operations was $46.0 million for the three months ended March 31, 2024, compared to net loss from discontinued operations of $13.3 million for the three months ended March 31, 2023. The increase in net income from discontinued operations was primarily driven by the $56.7 million gain on divestiture of the foodservice businesses for the three months ended March 31, 2024. Adjusted Net Income The increase in Adjusted Net Income for the three months ended March 31, 2024 was primarily attributable to the decrease in interest expense partially offset by the decrease in revenue as described above. For a reconciliation of Adjusted Net Income to Net income, see “ — Non-GAAP Financial Measures.” Adjusted EBITDA and Adjusted EBITDA by Segment Three Months Ended March 31, Change (amounts in thousands) 2024 2023 $ % Branded Services $ 41,400 $ 61,193 $ (19,793 ) (32.3 %) Experiential Services 17,125 6,862 10,263 149.6 % Retailer Services 20,235 24,015 (3,780 ) (15.7 %) Total Adjusted EBITDA $ 78,760 $ 92,070 $ (13,310 ) (14.5 %) Adjusted EBITDA, inclusive of continuing and discontinuing operations, decreased by $13.3 million, or 14.5%, to $78.8 million for the three months ended March 31, 2024, from $92.1 million for the three months ended March 31, 2023. In the Branded Services segment, the decrease was primarily attributable to the decline in revenues as described above and increase in cost of revenues, largely due to high wage inflation. In the Retailer Services segment, the decrease was primarily attributable to the decline in revenues as described above coupled with continued investment in our support services including our technology solutions. In the Experiential Services segment, the increase was driven largely by the growth in revenues from the in-store sampling and demonstration services as described above 32 offset by continued investment in our support services including our technology solutions. For a reconciliation of Adjusted EBITDA to Net income, see “— Non-GAAP Financial Measures .” 33 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) 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 and divestiture related expenses, (vi) costs associated with COVID-19, net of benefits received, (vii) net income attributable to noncontrolling interest, (viii) reorganization expenses, (ix) litigation expenses, (x) (gain) loss on divestitures, (xi) gain on repurchases of Term Loan Facility debt, (xii) costs associated with (recovery from) the Take 5 Matter, (xiii) other adjustments that management believes are helpful in evaluating our operating performance, and (xiv) 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. Adjusted Net Income should not be considered as an alternative for our Net income, our most directly comparable measure presented on a GAAP basis. A reconciliation of Adjusted Net Income to Net income is provided in the following table: Three Months Ended 2024 2023 (in thousands) Net loss $ (3,115 ) $ (47,678 ) Less: Net income (loss) attributable to noncontrolling interest 2,192 (91 ) Add: Equity-based compensation of Karman Topco L.P. (a) 392 (2,269 ) Change in fair value of warrant liability 287 (73 ) Fair value adjustments related to contingent consideration related to acquisitions (b) 689 4,292 Acquisition and divestiture related expenses (c) 1,319 2,432 Reorganization expenses (d) 37,126 11,148 Litigation expenses (recovery) (e) 284 — (Gain) loss on divestitures (57,016 ) 16,497 Amortization of intangible assets (j) 45,791 49,729 Costs associated with COVID-19, net of benefits received (f) — 1,017 Gain on repurchases of Term Loan Facility debt (k) (2,669 ) (275 ) Costs associated with the Take 5 Matter (g) 240 80 Tax adjustments related to non-GAAP adjustments (l) (6,224 ) (21,218 ) Adjusted Net Income $ 14,912 $ 13,773 Adjusted EBITDA and Adjusted EBITDA by Segment are supplemental non-GAAP financial measures of our operating performance. Adjusted EBITDA, inclusive of continuing and discontinuing operations, 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 and divestiture related expenses, (x) (gain) loss on divestiture, (xi) costs associated with COVID-19, net of benefits received, (xii) EBITDA for economic interests in investments, (xiii) reorganization expenses, (xiv) litigation expenses, (xv) costs associated with (recovery from) the Take 5 Matter and (xvi) other adjustments that management believes are helpful in evaluating our operating performance. Adjusted EBITDA by Segment means, with respect to the applicable operating segment, operating income from continuing operations plus operating income from discontinued operations before (i) depreciation, (ii) impairment of goodwill and indefinite-lived assets, (iii) gain on deconsolidation of subsidiaries, (iv) (gain) loss on divestitures, (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 and divestitures related expenses, (x) costs associated with COVID-19, net of benefits received, (xi) EBITDA for economic interests in investments, (xii) reorganization expenses, (xiii) litigation expenses, (xiv) costs associated with 34 (recovery from) the Take 5 Matter and (xv) other adjustments that management believes are helpful in evaluating our operating performance, in each case, attributable to such segment. Unallocated shared costs associated with discontinued operations from certain shared administrative functions, through the close of the discontinued operations; excluded from income from discontinued operations as they are not a direct cost of the discontinued business but a result of indirect allocations, including but not limited to, information technology, human resources, finance and accounting, supply chain, and commercial operations. Subsequent to the close of the divestitures, amounts attributable to unallocated shared costs would be mitigated through income from TSAs, subsequent strategic or restructuring initiatives, elimination of extraneous costs, or re-allocations or absorption of existing continuing operations. See Note 2 – Held for Sale, Divestitures and Discontinued Operations in Notes to the Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report for further details. 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. 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. 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. A reconciliation of Adjusted EBITDA to Net loss is provided in the following table: Consolidated Three Months Ended 2024 2023 (in thousands) Net loss $ (3,115 ) $ (47,678 ) Add: Interest expense, net 35,793 47,191 Benefit from income taxes (1,628 ) (7,696 ) Depreciation and amortization 52,356 57,104 Equity-based compensation of Karman Topco L.P. (a) 392 (2,269 ) Change in fair value of warrant liability 287 (73 ) Fair value adjustments related to contingent consideration related to acquisitions (b) 689 4,292 Acquisition and divestiture related expenses (c) 1,319 2,432 (Gain) loss on divestitures (57,016 ) 16,497 Reorganization expenses (d) 37,126 11,148 Litigation expenses (e) 284 — Costs associated with COVID-19, net of benefits received (f) — 1,017 Costs associated with the Take 5 Matter (g) 240 80 Stock-based compensation expense (h) 7,220 11,210 EBITDA for economic interests in investments (i) 4,813 (1,185 ) Adjusted EBITDA $ 78,760 $ 92,070 35 Financial information by segment, including a reconciliation of Adjusted EBITDA by Segment to operating income, the closest GAAP financial measure, is provided in the following table: Branded Services Segment Three Months Ended 2024 2023 (in thousands) Operating (loss) income from continuing operations $ (16,776 ) $ 6,176 Operating income (loss) from discontinued operations 52,681 (14,470 ) Add: Depreciation and amortization 34,254 39,530 Equity-based compensation of Karman Topco L.P. (a) 498 (1,021 ) Fair value adjustments related to contingent consideration related to acquisitions (b) 689 4,292 Acquisition and divestiture related expenses (c) 476 1,125 (Gain) loss on divestitures (57,016 ) 16,497 Reorganization expenses (d) 18,777 6,545 Litigation expenses (e) 191 — Costs associated with COVID-19, net of benefits received (f) — 29 Costs associated with the Take 5 Matter (g) 240 80 Stock-based compensation expense (h) 2,283 3,685 EBITDA for economic interests in investments (i) 5,103 (1,275 ) Branded Services Segment Adjusted EBITDA $ 41,400 $ 61,193 Experiential Services Segment Three Months Ended 2024 2023 (in thousands) Operating loss from continuing operations $ (5,027 ) $ (4,678 ) Operating income (loss) from discontinued operations 5,504 (211 ) Add: Depreciation and amortization 9,921 9,065 Equity-based compensation of Karman Topco L.P. (a) (44 ) (547 ) Acquisition and divestiture expenses (c) 315 392 Reorganization expenses (d) 4,350 1,966 Litigation expenses (e) 173 — Costs associated with COVID-19, net of benefits received (f) — 912 Stock-based compensation expense (h) 2,223 (101 ) EBITDA for economic interests in investments (i) (290 ) 64 Experiential Services Segment Adjusted EBITDA $ 17,125 $ 6,862 Retailer Services Segment Three Months Ended 2024 2023 (in thousands) Operating (loss) income from continuing operations $ (4,959 ) $ 5,246 Operating loss from discontinued operations (86 ) (319 ) Add: Depreciation and amortization 8,181 8,509 Equity-based compensation of Karman Topco L.P. (a) (62 ) (701 ) Acquisition and divestiture related expenses (c) 528 915 Reorganization expenses (d) 13,999 2,637 Litigation recovery (e) (80 ) — Costs associated with COVID-19, net of benefits received (f) — 76 Stock-based compensation expense (h) 2,714 7,626 EBITDA for economic interests in investments (i) — 26 Retailer Services Segment Adjusted EBITDA $ 20,235 $ 24,015 (a) 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. 36 (b) Represents adjustments to the estimated fair value of our contingent consideration liabilities related to our acquisitions. (c) Represents fees and costs associated with activities related to our acquisitions, divestitures, and related reorganization activities, including professional fees, due diligence, and integration activities. (d) Represents fees and costs associated with various internal reorganization activities, including professional fees, lease exit costs, severance, and nonrecurring compensation costs. (e) Represents legal settlements, reserves, and expenses that are unusual or infrequent costs associated with our operating activities. (f) Represents (i) costs related to implementation of strategies for workplace safety in response to COVID-19, including additional sick pay for front-line associates and personal protective equipment; and (ii) benefits received from government grants for COVID-19 relief. (g) Represents costs associated with the Take 5 Matter, primarily, professional fees and other related costs and cash receipts from an insurance policy for claims related to the Take 5 Matter (h) Represents non-cash compensation expense related to the 2020 Incentive Award Plan and the 2020 Employee Stock Purchase Plan. (i) 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. (j) Represents the amortization of intangible assets recorded in connection with the 2014 Topco Acquisition and our other acquisitions. (k) Represents a gain associated with the repurchases of Term Loan Facility and Senior Secured Notes. For additional information, refer to Note 4— Debt to our unaudited condensed financial statements for the three months ended March 31, 2024 and 2023. (l) 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. 37 Liquidity and Capital Resources 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, interest on debt and repayment of debt. Cash Flows A summary of our cash operating, investing and financing activities from continuing operations are shown in the following table: Three Months Ended March 31, (in thousands) 2024 2023 Net cash (used in) provided by operating activities from continuing operations $ (8,894 ) $ 41,396 Net cash provided by (used in) investing activities from continuing operations 68,715 (5,988 ) Net cash used in financing activities from continuing operations (66,882 ) (6,797 ) Net effect of foreign currency changes on cash from continuing operations (2,136 ) 1,311 Net change in cash, cash equivalents and restricted cash $ (9,197 ) $ 29,922 Net Cash (Used in) Provided by Operating Activities Net cash provided by operating activities from continuing operations during the three months ended March 31, 2024 consisted of net loss of $49.1 million adjusted for certain non-cash items, gain on repurchases of Senior Secured Notes of $2.7 million, depreciation and amortization of $51.5 million and effects of changes in working capital. Net cash provided by operating activities during the three months ended March 31, 2023 consisted of net loss of $34.4 million adjusted for certain non-cash items, including depreciation and amortization of $54.5 million and effects of changes in working capital. The decrease in cash provided by operating activities during the three months ended March 31, 2024 relative to the same period in 2023 was primarily due to increased reorganization costs during the three months ended March 31, 2024. Net Cash Provided by (Used in) Investing Activities Net cash provided by investing activities from continuing operations during the three months ended March 31, 2024 primarily consisted of the proceeds from the divestiture of our foodservice businesses, partially offset by the purchase of property and equipment of $16.2 million. Net cash used in investing activities during the three months ended March 31, 2023 primarily consisted of the purchase of property and equipment of $5.9 million. Net Cash Used in Financing Activities Cash flows used in financing activities from continuing operations during the three months ended March 31, 2024 were primarily related to repurchases of Senior Secured Notes of $47.9 million, repayment of principal on our Term Loan Facility of $3.3 million, payments of contingent consideration and holdback payments of $1.9 million, payments for taxes related to net share settlement of $3.3 million and payments related to the share repurchase program of $11.7 million. 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 of the Term Loan Facility of $1.7 million, payments for taxes related to net share settlement of $1.3 million, partially offset by $1.2 million related to proceeds from the issuance of Class A common stock. Description of Credit Facilities Senior Secured Credit Facilities Advantage Sales & Marketing Inc. (the “Borrower”), an indirect wholly-owned subsidiary of the Company, has (i) a senior secured asset-based revolving credit facility in an aggregate principal amount of up to $500.0 million, subject to borrowing base capacity (as may be amended from time to time, the “Revolving Credit Facility”) and (ii) a secured first 38 lien term loan credit facility in an aggregate principal amount of $1.1 billion (as may be amended from time to time, the “Term Loan Facility” and together with the Revolving Credit Facility, the “Senior Secured Credit Facilities”). Revolving Credit Facility Our 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 our 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., is administrative agent and ABL Collateral Agent. The Revolving Credit Facility is scheduled to mature in December 2027. 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, 2024, 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. Borrowings will bear interest at a floating rate, which can be either an adjusted Term SOFR or Alternative Currency Spread rate plus an applicable margin or, at the Borrower’s option, a base rate or Canadian Prime Rate plus an applicable margin. The applicable margins for the Revolving Credit Facility are 1.75%, 2.00% or 2.25%, with respect to Term SOFR or Alternative Currency Spread rate borrowings and 0.75%, 1.00%, or 1.25%, with respect to base rate or Canadian Prime 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 Canadian subsidiaries (subject to certain permitted exceptions, including exceptions based on immateriality thresholds 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 Borrower’s 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 our 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 our 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 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, 39 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. Term Loan Facility The Term Loan Facility is a term loan facility denominated in U.S. dollars in an aggregate principal amount of $1.1 billion as of March 31, 2024. Borrowings under the Term Loan Facility amortize in equal quarterly installments in an amount equal to 1.00% per annum of $1.1 billion principal amount. Borrowings will bear interest at a floating rate of Term SOFR plus an applicable margin of 4.50% per annum, subject to additional spread adjustment on SOFR ranging from 0.11% to 0.26%. 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. 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’s obligations under the Term Loan Facility are guaranteed by Holdings and the Guarantors. Our 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 security interests in 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 our 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 Borrower’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. Senior Secured Notes 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”). 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. 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. The Borrower may voluntarily prepay loans or reduce commitments under the Senior Secured Notes, in whole or in part, subject to minimum amounts, with prior notice but without premium or penalty. The Company voluntarily repurchased an aggregate of $51.0 million principal amount of its Senior Secured Notes during the three months ended March 31, 2024. The Company recognized a gain on the repurchase of $2.7 million for the three months ended March 31, 2024, as a component of “Interest expense, net” in the Condensed Consolidated Statements of Operations and 40 Comprehensive Loss. There were no repurchases of Senior Secured Notes during the three months ended March 31, 2023. 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. The Notes will mature on November 15, 2028. 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 thresholds 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 at the applicable redemption prices specified in the Indenture 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. The Issuer may voluntarily prepay loans or reduce commitments under the Notes, in whole or in part without premium or penalty. 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 so long as 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. 41 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. Future Cash Requirement There were no material changes to our contractual future cash requirements from those disclosed in our 2023 Annual Report. Cash and Cash Equivalents Held Outside the United States As of March 31, 2024, and December 31, 2023, $47.7 million and $43.8 million, respectively, of our cash and cash equivalents were held by foreign subsidiaries. As of March 31, 2024, and December 31, 2023, $24.8 million and $30.4 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 $0.5 million of withholding tax as of March 31, 2024 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. We have continued to assert indefinite reinvestment on all other earnings as it is necessary for continuing operations and to grow the business. If at a point in the future our assertion changes, we will evaluate tax-efficient means to repatriate the income. In addition, we expect existing domestic cash and cash flows from operations to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as debt repayment and capital expenditures, for at least the next 12 months and thereafter for the foreseeable future. If we should require more capital in the United States than is generated by our domestic operations, for example, to fund significant discretionary activities such as business acquisitions or to settle debt, we could elect to repatriate future earnings from foreign jurisdictions. 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 March 31, 2024, to be indefinitely reinvested and, accordingly, no provision has been made for taxes in excess of the $0.5 million noted above. Off-Balance Sheet Arrangements We do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity. We do not have any majority-owned subsidiaries that are not included in our consolidated financial statements. Additionally, we do not have an interest in, or relationships with, any special-purpose entities. Critical Accounting Policies and Estimates Our critical accounting policies and estimates are included in our 2023 Annual Report and did not materially change during the three months ended March 31, 2024. Recently Issued Accounting Pronouncements Accounting Standards Recently Issued but Not Yet Adopted by the Company In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires entities to expand their existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid. The standard is effective for us beginning in fiscal year 2025, with early adoption permitted. The new standard is expected to 42 be applied prospectively, but retrospective application is permitted. We are currently evaluating the impact of ASU 2023-09 on the consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires entities to disclose incremental segment information on an annual and interim basis, including significant segment expenses and measures of profit or loss that are regularly provided to the chief operating decision maker (“CODM”). The standard is effective for us beginning in fiscal year 2024 and interim periods within fiscal year 2025, with early adoption permitted. We are currently evaluating the impact of ASU 2023-07 on the consolidated financial statements and related disclosures and we expect to adopt the new standard using a retrospective approach. In March 2024, the Securities Exchange Commission (“SEC”) adopted final climate-related disclosure rules under SEC Release Nos. 33-11275 and 34-99678, The Enhancement and Standardization of Climate-Related Disclosures for Investors . The rules require disclosure of governance, risk management and strategy related to material climate-related risks as well as disclosure of material greenhouse gas emissions in registration statements and annual reports. In addition, the rules require presentation of certain material climate-related disclosures in the annual consolidated financial statements. On April 4, 2024, the SEC voluntarily stayed the effective date of the final rules pending completion of judicial review following legal challenges. The disclosure requirements will apply to our fiscal year reporting beginning October 4, 2025, pending resolution of the stay. We are currently evaluating the impact of the rules on the consolidated financial statements and related disclosures. 43