What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-05-10 · 303 added, 178 removed, 359 unchanged (57% of the section changed)

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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.

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 (the "Exchange Act") 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.

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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.

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 and assesses the performance and makes decisions regarding the allocation of resources for us.

Our revised reportable segments consist of Branded Services, Experiential Services, and Retailer Services.

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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 have determined that the other business units not yet disposed of met the held for sale and discontinued operations accounting criteria as of June 30, 2024 as their dispositions represent a strategic shift that has had a major effect on our operations and financial results.

Refer to Note 2— Held for Sale, 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:

Through our Branded Services segment, which generated approximately 37.5% and 46.4% of our revenues in the six months ended June 30, 2024 and 2023, respectively, we provide services to branded consumer goods manufacturers through three main categories:

brokerage, branded merchandising and omni-commerce marketing services.

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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,

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.

Our omni-commerce marketing services primarily relate to digital and field marketing services, 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 36.1% and 28.7% of our revenues in the six months ended June 30, 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.

Through our Retailer Services segment, which generated approximately 26.3% and 24.9% of our revenues in the six months ended June 30, 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.

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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.

Our financial performance for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 includes:

Our financial performance for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 includes:

• Revenues decreased by $90.4 million, or 9.4%, to $873.4 million;

• Operating loss from continuing operations decreased by $33.5 million, or 496.8%, to $26.8 million;

• Operating loss from continuing operations increased by $106.5 million to $91.3 million;

• Net loss from continuing operations increased by $100.0 million to $113.0 million;

• Adjusted Net Income decreased by $6.2 million, or 21.9%, to $22.0 million;

• Adjusted EBITDA from Continuing Operations remained flat at $89.9 million.

Our financial performance for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 includes:

• Revenues decreased by $153.7 million, or 8.1%, to $1,734.8 million;

• Operating loss from continuing operations increased by $140.5 million to $121.2 million;

• Net loss from continuing operations increased by $114.2 million to $163.1 million;

• Adjusted Net Income increased by $8.0 million, or 20.3%, to $31.2 million;

• Adjusted EBITDA from continuing and discontinued operations decreased by $13.3 million, or 14.5%, to $78.8 million.

• Adjusted EBITDA from Continuing Operations decreased by $11.6 million, or 6.7%, to $160.5 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:

There are a number of factors, in addition to the deconsolidation of our European joint venture in December 2023 and inflation, that affect the performance of our business and the comparability of our results from period to period including:

• Organic Growth.

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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.

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.

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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.

As part of the sales agreements for certain divestitures, we have agreed to provide certain transitional services as defined within the respective transition services agreements 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.

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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.

Adjustments to the estimated fair value related to changes in unobservable inputs are reported in “Selling, general, and administrative expenses” in our Condensed Consolidated Statements of Operations and Comprehensive Loss.

• Depreciation and Amortization.

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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.

dollar and other currencies, primarily the Canadian dollar due to our operations in such foreign jurisdictions.

See also “ —Quantitative and Qualitative Disclosure of Market Risk—Foreign Currency Risk.

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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.

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 Securities and Exchange Commission (“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.

Impairment of Goodwill and Indefinite-lived Assets

Impairment of Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired in an acquisition.

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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 estimated fair values 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.

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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.

During the three months ended June 30, 2024, the Company determined a triggering event occurred and an impairment assessment was warranted for the Branded Agencies reporting unit goodwill due to the pending sale of one of the businesses that comprised a substantial portion of the Branded Agencies reporting unit.

As a result, the Company recognized a non-cash goodwill impairment charge of $99.7 million related to the Company's Branded Agencies reporting unit goodwill during the three months ended June 30, 2024, which has been reflected in “Impairment of goodwill” in the Condensed Consolidated Statements of Comprehensive (Loss) Income.

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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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

Such amortization expense, although non-cash in the period expensed, directly impacts our results of 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.

Depreciation expense relates to the property and equipment that we own, which represented less than 1% of our total assets at June 30, 2024 and 2023, respectively.

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.

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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.

During the six months ended June 30, 2024, we sold five businesses.

Additionally, we classified certain assets and liabilities which are expected to be recovered through a sale transaction rather than through continuing use as held for sale as of June 30, 2024.

We expect to use the divestiture proceeds to invest in our business, reduce debt, create 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.

divestiture related expenses, (viii) reorganization expenses, (ix) litigation expenses, (x) (gain) loss on divestitures, (xi) amortization of intangible assets, (xii) costs associated with COVID-19, net of benefits received, (xiii) gain on repurchases of Term Loan Facility and Senior Secured Notes debt, (xiv) costs associated with (recovery from) the Take 5 Matter, (xv) other adjustments that management believes are helpful in evaluating our operating performance, and (xvi) 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

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.

Adjusted EBITDA from Continuing Operations, Adjusted EBITDA from Discontinued Operations and Adjusted EBITDA by Segment

Adjusted EBITDA from Continuing Operations, Adjusted EBITDA from Discontinued Operations and Adjusted EBITDA by Segment are supplemental non-GAAP financial measures of our operating performance.

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

Adjusted EBITDA by Segment means, with respect to each segment, operating income (loss) from continuing operations before (i) depreciation, (ii) amortization of intangible assets, (iii) impairment of goodwill, (iv) stock-based compensation expense, (v) equity-based compensation of Karman Topco L.P., (vi) fair value adjustments of contingent consideration related to acquisitions, (vii) acquisition and divestiture related expenses, (viii) reorganization expenses, (ix) litigation expenses (recovery), (x) costs associated with COVID-19, net of benefits received, (xi) costs associated with (recovery from) the Take 5 Matter, (xii) EBITDA for economic interests in investments and (xiii) other adjustments that management believes are helpful in evaluating our operating performance, in each case, attributable to such segment.

We present Adjusted EBITDA from Continuing Operations, Adjusted EBITDA from Discontinued Operations 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.

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

None of Adjusted EBITDA from Continuing Operations, Adjusted EBITDA from Discontinued Operations 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.

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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.

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,

We recorded severance expenses of $4.5 million and $14.1 million included in “Selling, general, and administrative expenses” in the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2024, respectively.

In July 2024, we announced a reorganization plan as part of our continued transformation strategy to improve our cost structure and intend to implement various other efforts to improve operating efficiency.

The reorganization plan was designed to simplify the organization that supports the new segments after the divestitures and related transitions.

The overall project is expected to be substantially completed by the end of 2024.

Results of Operations for the Three and Six Months Ended June 30, 2024 and 2023

The following table sets forth items derived from the Company’s consolidated statements of operations for the three and six months ended June 30, 2024 and 2023 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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Selling, general, and administrative expenses

Impairment of goodwill

Depreciation and amortization

Income from unconsolidated investments

Income (loss) from unconsolidated investments

Total operating expenses

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

net income (loss) attributable to noncontrolling interest - discontinued operations

net income from continuing operations attributable to noncontrolling interest

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

Net loss attributable to stockholders of Advantage Solutions Inc.

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Adjusted Net Income (1)

Adjusted EBITDA (1)

(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

Three Months Ended March 31,

Adjusted EBITDA from Continuing Operations (1)

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

For a discussion of our presentation of Adjusted Net Income and Adjusted EBITDA from Continuing Operations and reconciliations of Net income to Adjusted Net Income and Adjusted EBITDA from Continuing Operations, see “ —Non-GAAP Financial Measures .”

Comparison of the Three Months Ended June 30, 2024 and 2023

Three Months Ended June 30,

(amounts in thousands)

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Retailer Services

Total revenues from continuing operations

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.

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.

Total revenues

Total revenues decreased by $90.4 million, or 9.4%, during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.

Excluding $100.6 million revenues from the deconsolidation of our European joint venture, revenues increased 1.1%.

The Branded Services segment revenues decreased $124.9 million during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Excluding $100.6 million revenues from the deconsolidation of our European joint venture, the segment experienced a decrease of $24.3 million in revenues primarily due to an intentional client resignation and softness in our omni-commerce marketing services.

The Experiential Services segment revenues increased $34.3 million during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

The increase in revenues was primarily due to an increase in our events per day volume.

The Retailer Services segment revenues remained relatively unchanged during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

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.

Cost of revenues as a percentage of revenues for the three months ended June 30, 2024 was 86.0%, as compared to 87.9% for the three months ended June 30, 2023.

The decrease as a percentage of revenues was largely attributable to 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, 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.

Selling, general, and administrative expenses as a percentage of revenues for the three months ended June 30, 2024 was 7.2%, compared to 5.0% for the three months ended June 30, 2023.

The increase as a percentage of revenues was primarily due to the $14.5 million increase in costs associated with our internal reorganization activities, largely related to professional fees and severance and continued investment in our support services, including our technology solutions.

Impairment of Goodwill

We recognized a $99.7 million non-cash goodwill impairment charge during the three months ended June 30, 2024.

The impairment charges were due to the pending sale of one of the businesses that comprised a substantial portion of the Branded Agencies reporting unit.

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.

Depreciation and amortization expense was $51.3 million for the three months ended June 30, 2024 compared to $52.5 million for the three months ended June 30, 2023.

The decrease is primarily attributable to a decrease in the depreciation and amortization expenses from the deconsolidation of our European joint venture.

Operating Income (Loss) from Continuing Operations

Three Months Ended March 31,

Three Months Ended June 30,

(amounts in thousands)

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Total operating (loss) income from continuing operations

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.

In the Branded Services segment, the decrease in operating income during the three months ended June 30, 2024 was primarily due to the goodwill impairment and the decrease in revenue noted above and an increase in costs associated with our internal reorganization activities combined with continued investment in our support services, including our technology solutions.

In the Experiential Services segment, the increase in operating income during the three months ended June 30, 2024 was due to increase in revenues as described above, partially offset by an increase in costs associated with our internal reorganization activities combined with continued investment in our support services, including our technology solutions.

In the Retailer Services segment, the increase in operating income during the three months ended June 30, 2024 was due to improved margins in our services partially offset by an increase in costs associated with our internal reorganization activities combined 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.

Change in fair value of warrant liability was $0.7 million of non-cash gain for the three months ended June 30, 2024 compared to $0.1 million of non-cash expense resulting from a fair value adjustment to warrant liability with respect to the private placement warrants for the three months ended June 30, 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

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.

Interest expense, net increased by $9.3 million, or 30.6%, to $39.8 million for the three months ended June 30, 2024, from $30.5 million for the three months ended June 30, 2023.

The increase in interest expense was primarily due to changes in the fair value of our derivative instruments during the three months ended June 30, 2024, partially offset by lower debt balance as a result of repurchases of Term Loan Facility and Senior Secured Notes as further described in “ Liquidity and Capital Resources—Description of Credit Facilities—Senior Secured Notes .”

(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.

Benefit from income taxes was $17.3 million for the three months ended June 30, 2024 as compared to $2.2 million of benefit from income taxes for the three months ended June 30, 2023.

The fluctuation was primarily attributable to a larger pre-tax loss during the three months ended June 30, 2024 compared to a smaller pre-tax loss during the three months ended June 30, 2023.

Also contributing to the variance was the application of a windfall of $0.4 million of stock based compensation for the three months ended June 30, 2024, as compared to a $0.9 million shortfall for the three months ended June 30, 2023.

Benefit from income taxes from discontinued operations was $2.4 million for the three months ended June 30, 2024, while the income tax provision from discontinued operations was $1.8 million for the three months ended June 30, 2023.

The benefit from income tax for the three months ended June 30, 2024 was impacted primarily by the result of pre-tax income and the sale of divested entities.

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 loss from continuing operations was $113.0 million for the three months ended June 30, 2024, compared to net loss from continuing operations of $13.0 million for the three months ended June 30, 2023.

The increase in net loss from continuing operations was primarily driven by $99.7 million goodwill impairment.

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.

Net income from discontinued operations was $12.2 million for the three months ended June 30, 2024, compared to net income from discontinued operations of $5.2 million for the three months ended June 30, 2023.

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.

The increase in Adjusted Net Income for the three months ended June 30, 2024 was primarily attributable to increases in selling, general, and administrative expenses and interest expense partially offset by the increase in the benefit from income taxes.

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,

Adjusted EBITDA from Continuing Operations and Adjusted EBITDA by Segment

Three Months Ended June 30,

(amounts in thousands)

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Retailer Services

Total Adjusted EBITDA

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.

Total Adjusted EBITDA from Continuing Operations

Adjusted EBITDA from Continuing Operations remained relatively unchanged for the three months ended June 30, 2024 from the three months ended June 30, 2023.

In the Branded Services segment, the decrease was primarily attributable to the decline in revenues as described above.

In the Retailer Services segment, the increase was primarily attributable to increase in margins driven by price.

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 offset by continued investment in our support services including our technology solutions.

For a reconciliation of Adjusted EBITDA from Continuing Operations to Net income, see “—Non-GAAP Financial Measures.”

Comparison of the Six Months Ended June 30, 2024 and 2023

Six Months Ended June 30,

(amounts in thousands)

Branded Services

Experiential Services

Retailer Services

Total revenues

Total revenues decreased by $153.7 million, or 8.1%, during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023.

Excluding revenues from the deconsolidation of our European joint venture, revenues increased 2.1%.

The Branded Services segment revenues decreased by $224.6 million during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Excluding $194.0 million revenues from the deconsolidation of our European joint venture, the segment experienced a decrease of $30.6 million in revenues primarily due to an intentional client resignation.

The Experiential Services segment revenues increased by $84.5 million during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

The increase in revenues was primarily due to an increase in our events per day volume.

The Retailer Services segment revenues decreased by $13.7 million during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

The decrease in revenues was primarily due to a decrease in merchandising projects that were completed in the first quarter of the 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 six months ended June 30, 2024 was 86.7%, as compared to 87.9% for the six months ended June 30, 2023, which stayed relatively consistent.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses as a percentage of revenues for the six months ended June 30, 2024 was 8.8%, compared to 5.5% for the six months ended June 30, 2023.

The increase as a percentage of revenues was primarily due to a $38.4 million increase in costs associated with our internal reorganization activities, largely related to professional fees and severance and the continued investment in our support services including our technology solutions.

Impairment of Goodwill

We recognized a $99.7 million non-cash goodwill impairment charge during the six months ended June 30, 2024.

The impairment charges were due to the pending sale of one of the businesses that comprised a substantial portion of the Branded Agencies reporting unit.

Depreciation and Amortization Expense

Depreciation and amortization expense was $101.1 million for the six months ended June 30, 2024 compared to $105.0 million for the six months ended June 30, 2023.

The decrease is largely attributable to a decrease in the depreciation and amortization from the deconsolidation of our European joint venture.

Operating Income (Loss) from Continuing Operations

Six Months Ended June 30,

(amounts in thousands)

Branded Services

Experiential Services

Retailer Services

Total operating (loss) income from continuing operations

In the Branded Services segment, the decrease in operating income during the six months ended June 30, 2024 was primarily due to the goodwill impairment and the decrease in revenue noted above and an increase in costs associated with our internal reorganization activities combined with continued investment in our support services including our technology solutions.

In the Experiential Services segment, the increase in operating income during the six months ended June 30, 2024 was due to the increase in revenues as described above, partially offset by an increase in costs associated with our internal reorganization activities combined with continued investment in our support services including our technology solutions.

In the Retailer Services segment, the decrease in operating income during the six months ended June 30, 2024 was due to an increase in costs associated with our internal reorganization activities combined with continued investment in our support services including our technology solutions, partially offset by improved margins in our services.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability was $0.4 million of non-cash gain for the six months ended June 30, 2024, whereas the six months ended June 30, 2023 did not have a non-cash gain or loss.

Interest Expense, net

Interest expense, net decreased by $2.1 million, or 2.7%, to $75.5 million for the six months ended June 30, 2024, from $77.6 million for the six months ended June 30, 2023.

The decrease in interest expense was primarily due to lower debt balances as a result of repurchases of Term Loan Facility and Senior Secured Notes as further described in “ Liquidity and Capital Resources—Description of Credit Facilities—Senior Secured Notes ”, partially offset by changes in the fair value of our derivative instruments during the six months ended June 30, 2024.

(Benefit from) Provision for Income Taxes

Benefit from income taxes was $33.2 million for the six months ended June 30, 2024 as compared to $9.4 million of benefit from income taxes for the six months ended June 30, 2023.

The fluctuation was primarily attributable to a larger pre-tax loss, the application of the windfall of $1.1 million of stock based compensation as compared to a $3.1 million shortfall in the prior year, and the release of the valuation allowance of $1.1 million that was determined not to be necessary for the six months ended June 30, 2024.

Income tax expense from discontinued operations was $11.9 million for the six months ended June 30, 2024, while the income tax expense from discontinued operations was $1.3 million for the six months ended June 30, 2023.

The income tax expense for the six months ended June 30, 2024 was impacted primarily by the sale of divested entities.

The income tax benefit for the six months ended June 30, 2023 was primarily the result of pre-tax loss.

Net Loss from Continuing Operations

Net loss from continuing operations was $163.1 million for the six months ended June 30, 2024, compared to net loss from continuing operations of $48.9 million for the six months ended June 30, 2023.

The increase in net loss from continuing operations was primarily driven by goodwill impairment recorded in 2024.

Net Income (Loss) from Discontinued Operations

Net income from discontinued operations was $59.2 million for the six months ended June 30, 2024, compared to net loss from discontinued operations of $6.6 million for the six months ended June 30, 2023.

The increase in net income from discontinued operations was primarily driven by the $70.2 million gain on divestitures for the six months ended June 30, 2024.

Adjusted Net Income

The decrease in Adjusted Net Income for the six months ended June 30, 2024 was primarily attributable to an increase in selling, general and administrative expenses, partially offset by an increase in the benefit from income taxes.

For a reconciliation of Adjusted Net Income to Net income, see “ — Non-GAAP Financial Measures.”

Adjusted EBITDA from Continuing Operations and Adjusted EBITDA by Segment

Six Months Ended June 30,

(amounts in thousands)

Branded Services

Experiential Services

Retailer Services

Total Adjusted EBITDA from Continuing Operations

Adjusted EBITDA from Continuing Operations decreased by $11.6 million, or 6.7%, to $160.5 million for the six months ended June 30, 2024, from $172.1 million for the six months ended June 30, 2023.

In the Branded Services segment, the decrease was primarily attributable to the decline in revenues as described above.

In the Retailer Services

segment, Adjust EBITDA was relatively unchanged.

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.

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 .”

All three of our segments experienced increased costs from continued investment in our support services including our technology solutions.

For a reconciliation of Adjusted EBITDA from Continuing Operations to Net 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) 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.

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

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

Adjusted Net Income should not be considered as an alternative for Net income, our most directly comparable measure presented on a GAAP basis.

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

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Net income (loss) attributable to noncontrolling interest

Equity-based compensation of Karman Topco L.P.

Net loss from continuing operations

Net (loss) income attributable to noncontrolling interests

Impairment of goodwill

Equity-based compensation of Karman Topco L.P (a)

Change in fair value of warrant liability

Fair value adjustments related to contingent consideration

related to acquisitions (b)

Fair value adjustments related to contingent consideration related to acquisitions (b)

Acquisition and divestiture related expenses (c)

Reorganization expenses (d)

Litigation expenses (recovery) (e)

(Gain) loss on divestitures

Litigation (recovery) expenses (e)

Amortization of intangible assets (j)

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

Gain on repurchases of Term Loan Facility debt (k)

Costs associated with the Take 5 Matter (g)

Gain on repurchases of Term Loan Facility and Senior Secured Notes (k)

Costs associated with the Take 5 Matter, net of (recoveries) (g)

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, 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.

(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.

Adjusted EBITDA from Continuing Operations, Adjusted EBITDA from Discontinued Operations and Adjusted EBITDA by Segment are supplemental non-GAAP financial measures of our operating performance.

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.

Subsequent to the close of the divestitures, amounts attributable to unallocated shared costs would be mitigated through income from transition services agreements, 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.

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.

None of Adjusted EBITDA from Continuing Operations, Adjusted EBITDA from Discontinued Operations 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.

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:

Three Months Ended

Reconciliations of Adjusted EBITDA from Continuing Operations to Net loss from continuing operations is provided in the following table:

Continuing Operations

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Net loss from continuing operations

Interest expense, net

1 unchanged sentence

Depreciation and amortization

Equity-based compensation of Karman Topco L.P.

Impairment of goodwill

Change in fair value of warrant liability

Fair value adjustments related to contingent consideration

related to acquisitions (b)

Stock-based compensation expense (h)

Equity-based compensation of Karman Topco L.P.

Fair value adjustments related to contingent consideration related to acquisitions (b)

Acquisition and divestiture related expenses (c)

(Gain) loss on divestitures

Reorganization expenses (d)

Litigation expenses (e)

Litigation (recovery) expenses (e)

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

Costs associated with the Take 5 Matter (g)

Costs associated with the Take 5 Matter, net of (recoveries) (g)

EBITDA for economic interests in investments (i)

Adjusted EBITDA from Continuing Operations

Reconciliations of Adjusted EBITDA from Discontinued Operations to Net income (loss) from discontinued operations is provided in the following table:

Discontinued Operations

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Net income (loss) from discontinued operations

Interest expense, net

Benefit from income taxes

Depreciation and amortization

Fair value adjustments related to contingent consideration related to acquisitions (b)

Acquisition and divestiture related expenses (c)

(Gain) loss on divestitures

Reorganization expenses (d)

Stock-based compensation expense (h)

EBITDA for economic interests in investments (i)

Adjusted EBITDA

Adjusted EBITDA from Discontinued Operations

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

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Operating (loss) income from continuing operations

Operating income (loss) from discontinued operations

Depreciation and amortization

Equity-based compensation of Karman Topco L.P.

Fair value adjustments related to contingent consideration

related to acquisitions (b)

Impairment of goodwill

Stock-based compensation expense (h)

Equity-based compensation of Karman Topco L.P (a)

Fair value adjustments related to contingent consideration related to acquisitions (b)

Acquisition and divestiture related expenses (c)

(Gain) loss on divestitures

Reorganization expenses (d)

Litigation expenses (e)

Litigation (recovery) expenses (e)

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

Costs associated with the Take 5 Matter (g)

Stock-based compensation expense (h)

Costs associated with the Take 5 Matter, net of (recoveries) (g)

EBITDA for economic interests in investments (i)

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Experiential Services Segment

Three Months Ended

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Operating loss from continuing operations

Operating income (loss) from discontinued operations

Operating income from continuing operations

Depreciation and amortization

Equity-based compensation of Karman Topco L.P.

Acquisition and divestiture expenses (c)

Stock-based compensation expense (h)

Equity-based compensation of Karman Topco L.P (a)

Fair value adjustments related to contingent consideration related to acquisitions (b)

Acquisition and divestiture related expenses (c)

Reorganization expenses (d)

Litigation expenses (e)

Litigation (recovery) expenses (e)

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

Stock-based compensation expense (h)

EBITDA for economic interests in investments (i)

Experiential Services Segment Adjusted EBITDA

Retailer Services Segment

Three Months Ended

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Operating (loss) income from continuing operations

Operating loss from discontinued operations

Operating income from continuing operations

Depreciation and amortization

Equity-based compensation of Karman Topco L.P.

Stock-based compensation expense (h)

Equity-based compensation of Karman Topco L.P (a)

Fair value adjustments related to contingent consideration related to acquisitions (b)

Acquisition and divestiture related expenses (c)

Reorganization expenses (d)

Litigation recovery (e)

Litigation (recovery) expenses (e)

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

Stock-based compensation expense (h)

EBITDA for economic interests in investments (i)

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

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

Represents adjustments to the estimated fair value of our contingent consideration liabilities related to our acquisitions, for the applicable periods.

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

1 unchanged sentence

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

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;

Represents (i) costs related to implementation of strategies for workplace safety in response to COVID-19, including employee-relief fund, additional sick pay for front-line associates, medical benefit payments for furloughed associates, and personal protective equipment;

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

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

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

Represents cash receipts from an insurance policy for claims related to the Take 5 Matter and costs associated with investigation and remediation activities related to the Take 5 Matter, primarily professional fees and other related costs.

Represents non-cash compensation expense related to performance stock units, restricted stock units, and stock options under the 2020 Advantage Solutions Incentive Award Plan and the Advantage Solutions 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 the amortization of intangible assets recorded in connection with the 2014 Topco Acquisition and our other acquisitions.

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.

Represents a gain associated with the repurchases of Term Loan Facility and Senior Secured Notes, net of deferred financing fees related to repricing of Term Loan Facility.

For additional information, refer to Note 4— Debt to our unaudited condensed financial statements for the six months ended June 30, 2024 and 2023.

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.

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

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

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

Net cash provided by operating activities from continuing operations

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

2 unchanged sentences

Net change in cash, cash equivalents and restricted cash

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 Operating Activities

Net cash provided by operating activities from continuing operations during the six months ended June 30, 2024 consisted of net loss of $212.0 million adjusted for certain non-cash items, including impairment of goodwill of $99.7 million, gain on repurchases of Senior Secured Notes, net of cost of extinguishments, of $4.0 million, depreciation and amortization of $101.1 million, stock-based compensation of $16.1 million and effects of changes in working capital.

Net cash provided by operating activities from continuing operations during the six months ended June 30, 2023 consisted of net loss of $48.9 million adjusted for certain non-cash items, including depreciation and amortization of $105.0 million, stock-based compensation of $20.4 million and effects of changes in working capital.

The decrease in cash provided by operating activities from continuing operations during the six months ended June 30, 2024 relative to the same period in 2023 was primarily due to a larger decrease in accounts receivable during the six months ended June 30, 2023 as compared to the six months ended June 30, 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 provided by investing activities from continuing operations during the six months ended June 30, 2024 primarily consisted of the proceeds from divestitures of $146.8 million, partially offset by the purchase of property and equipment of $25.1 million and the purchase of investments in unconsolidated affiliates of $10.9 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 $14.0 million and proceeds from the divestitures of $12.8 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.

Cash flows used in financing activities from continuing operations during the six months ended June 30, 2024 were primarily related to repurchases of Senior Secured Notes of $71.7 million, repayment of principal on our Term Loan Facility of $6.6 million, payments of contingent consideration of $7.6 million, payments for taxes related to net share settlement of $11.1 million and payments related to the share repurchase program of $20.8 million.

Cash flows used in financing activities during the six months ended June 30, 2023 were primarily related to payments of contingent consideration and holdback payments of $3.5 million, repayment of principal on our Term Loan Facility of $6.7 million, repurchases of the Term Loan Facility of $49.4 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

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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

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”).

(the “Borrower”), our 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 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

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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, 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).

As of June 30, 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.

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The Revolving Credit Facility provides that, upon the occurrence of certain events of default, the Borrower’s obligations thereunder may be accelerated and the lending commitments terminated.

Such events of default include payment defaults to the lenders thereunder, material inaccuracies of representations and warranties, covenant defaults,

cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy, insolvency, corporate arrangement, winding-up, liquidation or similar proceedings, material money judgments, material pension-plan events, certain change of control events and other customary events of default.

Such events of default include

payment defaults to the lenders thereunder, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy, insolvency, corporate arrangement, winding-up, liquidation or similar proceedings, material money judgments, material pension-plan events, certain change of control events and other customary events of default.

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.

dollars in an aggregate principal amount of $1.1 billion as of June 30, 2024.

Borrowings under the Term Loan Facility amortize in equal quarterly installments in an amount equal to 1.00% per annum of the original issued amount of $1.3 billion principal amount.

Borrowings will bear interest at a floating rate of Term SOFR plus an applicable margin of 4.25% per annum, subject to additional spread adjustment on SOFR ranging from 0.11% to 0.26%.

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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

Comprehensive Loss.

There were no repurchases of Senior Secured Notes during the three months ended March 31, 2023.

The Company voluntarily repurchased an aggregate of $77.5 million principal amount of its Senior Secured Notes during the six months ended June 30, 2024.

The Company recognized a gain on the repurchase of $5.1 million for the six months ended June 30,

2024, as a component of “Interest expense, net” in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

There were no repurchases of Senior Secured Notes during the six months ended June 30, 2023.

Interest and maturity

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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.

As of June 30, 2024, and December 31, 2023, $56.9 million and $43.8 million, respectively, of our cash and cash equivalents were held by foreign subsidiaries.

As of June 30, 2024, and December 31, 2023, $23.5 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 June 30, 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.

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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 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.

We consider the majority of the undistributed earnings of our foreign subsidiaries, as of June 30, 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

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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.

Our critical accounting policies and estimates are included in our 2023 Annual Report and did not materially change during the six months ended June 30, 2024 except as included below.

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 client, distribution methods and regulatory environment.

In connection with the Company’s reorganization and the associated change in operating segments, the Company reassessed its reporting units and concluded that it has five reporting units (Branded Services, Branded Agencies, Experiential Services, Merchandising and Retailer Agencies).

As a result, the Company performed the required impairment assessments directly before and immediately after the change in reporting units as of January 1,

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%.

Notwithstanding the foregoing, during the three months ended June 30, 2024, we determined a triggering event occurred and an impairment assessment was warranted for the Branded Agencies reporting unit goodwill due to the pending sale of one of the businesses that comprised a substantial portion of the assets, liabilities, and prospective cash flows of the Branded Agencies reporting unit.

We utilize a combination of income and market approaches to estimate the fair value of our reporting units.

The income approach utilizes estimates of discounted cash flows of the reporting units, which requires assumptions for, the reporting units’ revenue growth rates, earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins, terminal growth rates, discount rates, and incremental net working capital, all of which require significant management judgment.

The market approach applies market multiples derived from the historical earnings data of selected guideline publicly-traded companies to our reporting units’ businesses to yield a second assumed value of each reporting unit, which requires significant management judgment.

The guideline companies are first screened by industry group and then further narrowed based on the reporting units’ business descriptions, markets served, competitors, EBITDA margins and revenue size.

Market multiples are then selected from within the range of these guideline companies’ multiples based on the subject reporting unit.

We compare a weighted average of the output from the income and market approaches to the carrying value of each reporting unit.

We also compare the aggregate estimated fair value of our reporting units to the estimated value of our total market capitalization.

The assumptions in the income and market approach are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy.

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.

As a result of the impairment test performed, we recognized a goodwill impairment charge of $99.7 million related to the Company's Branded Agencies reporting unit goodwill during the three months ended June 30, 2024, which has been reflected in “Impairment of goodwill” in the Condensed Consolidated Statements of Comprehensive (Loss) Income.

As a result of this charge, an immaterial amount of goodwill remains in this reporting unit.

The uncertainty and volatility in the economic environment which we operate could have an impact on our future growth and could result in future impairment charges.

There is no assurance that actual future earnings, cash flows or other assumptions for the reporting units will not significantly decline from these projections.

Recently Issued Accounting Pronouncements

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The standard is effective for us beginning in fiscal year 2025, with early adoption permitted.

The new standard is expected to

be applied prospectively, but retrospective application is permitted.

The new standard is expected to 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.

In March 2024, the 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 .

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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 2. Management’s Discussion and Analysis