Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
ADVANTAGE SOLUTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30,
December 31,
(in thousands, except share data)
2024
2023
ASSETS
Current assets
Cash and cash equivalents
$
153,988
$
120,839
Restricted cash
15,382
16,363
Accounts receivable, net of allowance for expected credit losses from continuing operations of $ 16,054 and $ 29,294 respectively
647,397
659,499
Prepaid expenses and other current assets
106,957
115,921
Current assets of discontinued operations
152,892
99,412
Total current assets
1,076,616
1,012,034
Property and equipment, net
86,862
64,708
Goodwill
610,521
710,191
Other intangible assets, net
1,463,303
1,551,828
Investments in unconsolidated affiliates
220,088
210,829
Other assets
40,021
43,543
Other assets of discontinued operations
—
186,190
Total assets
$
3,497,411
$
3,779,323
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt
$
13,275
$
13,274
Accounts payable
204,903
172,894
Accrued compensation and benefits
138,890
161,447
Other accrued expenses
118,895
144,415
Deferred revenues
28,852
26,598
Current liabilities of discontinued operations
4,136
22,669
Total current liabilities
508,951
541,297
Long-term debt, net of current portion
1,769,196
1,848,118
Deferred income tax liabilities
174,179
204,136
Other long-term liabilities
71,351
74,555
Other liabilities of discontinued operations
—
7,140
Total liabilities
2,523,677
2,675,246
Commitments and contingencies (Note 9)
Common stock, $ 0.0001 par value, 3,290,000,000 shares authorized; 323,020,596 and 322,235,261 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively
32
32
Additional paid in capital
3,452,358
3,449,261
Accumulated deficit
( 2,420,792
)
( 2,314,650
)
Loans to Karman Topco L.P.
( 6,707
)
( 6,387
)
Accumulated other comprehensive loss
( 11,433
)
( 3,945
)
Treasury stock, at cost; 8,875,170 and 3,600,075 shares as of June 30, 2024 and December 31, 2023, respectively
( 39,724
)
( 18,949
)
Total equity attributable to stockholders of Advantage Solutions Inc.
973,734
1,105,362
Noncontrolling interest
—
( 1,285
)
Total stockholders’ equity
973,734
1,104,077
Total liabilities, noncontrolling interest, and stockholders’ equity
$
3,497,411
$
3,779,323
See Notes to the Condensed Consolidated Financial Statements.
3
ADVANTAGE SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands, except share and per share data)
2024
2023
2024
2023
Revenues
$
873,357
$
963,758
$
1,734,769
$
1,888,471
Cost of revenues (exclusive of depreciation and amortization shown separately below)
751,337
847,549
1,503,181
1,660,295
Selling, general, and administrative expenses
62,858
48,481
151,939
103,881
Impairment of goodwill
99,670
—
99,670
—
Depreciation and amortization
51,317
52,477
101,065
105,021
(Income) loss from unconsolidated investments
( 566
)
—
123
—
Total operating expenses
964,616
948,507
1,855,978
1,869,197
Operating (loss) income from continuing operations
( 91,259
)
15,251
( 121,209
)
19,274
Other (income) expenses:
Change in fair value of warrant liability
( 686
)
73
( 399
)
—
Interest expense, net
39,754
30,446
75,515
77,608
Total other expenses
39,068
30,519
75,116
77,608
Loss from continuing operations before income taxes
( 130,327
)
( 15,268
)
( 196,325
)
( 58,334
)
Benefit from income taxes for continuing operations
( 17,311
)
( 2,244
)
( 33,176
)
( 9,416
)
Net loss from continuing operations
( 113,016
)
( 13,024
)
( 163,149
)
( 48,918
)
Net income (loss) from discontinued operations, net of tax
12,181
5,178
59,199
( 6,606
)
Net loss
( 100,835
)
( 7,846
)
( 103,950
)
( 55,524
)
Less: net income from continuing operations attributable to noncontrolling interest
—
909
—
909
Less: net income (loss) from discontinued operations attributable to noncontrolling interest
—
7
2,192
( 84
)
Net loss attributable to stockholders of Advantage Solutions Inc.
$
( 100,835
)
$
( 8,762
)
$
( 106,142
)
$
( 56,349
)
Net loss per common share:
Basic loss per common share from continuing operations
$
( 0.35
)
$
( 0.04
)
$
( 0.51
)
$
( 0.15
)
Basic earnings (loss) per common share from discontinued operations
$
0.04
$
0.02
$
0.18
$
( 0.02
)
Basic loss per common share attributable to stockholders of Advantage Solutions Inc.
$
( 0.31
)
$
( 0.03
)
$
( 0.33
)
$
( 0.17
)
Diluted net loss per share:
Diluted loss per common share from continuing operations
$
( 0.35
)
$
( 0.04
)
$
( 0.51
)
$
( 0.15
)
Diluted earnings (loss) per common share from discontinued operations
$
0.04
$
0.02
$
0.18
$
( 0.02
)
Diluted loss per common share attributable to stockholders of Advantage Solutions Inc.
$
( 0.31
)
$
( 0.03
)
$
( 0.33
)
$
( 0.17
)
Weighted-average number of common shares:
Basic
322,791,242
324,178,691
322,124,698
322,665,312
Diluted
322,791,242
324,178,691
322,124,698
322,665,312
Comprehensive (Loss) Income:
Net loss attributable to stockholders of Advantage Solutions Inc.
$
( 100,835
)
$
( 8,762
)
$
( 106,142
)
$
( 56,349
)
Other comprehensive income, net of tax:
Foreign currency translation adjustments
( 2,340
)
3,722
( 5,057
)
5,246
Total comprehensive loss attributable to stockholders of Advantage Solutions Inc.
$
( 103,175
)
$
( 5,040
)
$
( 111,199
)
$
( 51,103
)
See Notes to the Condensed Consolidated Financial Statements.
4
ADVANTAGE SOLUTIONS INC.
CONDENSED CONSOL IDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
Accumulated
Advantage
Common Stock
Treasury Stock
Additional
Loans
Other
Solutions Inc.
Total
Paid-in
Accumulated
to
Comprehensive
Stockholders'
Noncontrolling
Stockholders'
(in thousands, except share data)
Shares
Amount
Shares
Amount
Capital
Deficit
Topco
Income (Loss)
Equity
Interests
Equity
Balance at April 1, 2024
323,894,143
$
32
6,600,075
$
( 30,638
)
$
3,447,038
$
( 2,319,957
)
$
( 6,536
)
$
( 6,662
)
$
1,083,277
$
906
$
1,084,183
Comprehensive (loss) income
Net loss
—
—
—
—
—
( 100,835
)
—
—
( 100,835
)
—
( 100,835
)
Foreign currency translation adjustments
—
—
—
—
—
—
—
( 2,340
)
( 2,340
)
74
( 2,266
)
Total comprehensive (loss) income
—
—
—
—
—
—
—
—
( 103,175
)
74
( 103,101
)
Interest on loans to Karman Topco L.P.
—
—
—
—
—
—
( 171
)
—
( 171
)
—
( 171
)
Purchase of treasury stock
( 2,275,095
)
—
2,275,095
( 9,086
)
—
—
—
—
( 9,086
)
—
( 9,086
)
Equity-based compensation of Karman Topco L.P.
—
—
—
—
( 872
)
—
—
( 872
)
—
( 872
)
Payments for taxes related to net share settlement under 2020 Incentive Award Plan
—
—
—
—
( 1,425
)
—
—
—
( 1,425
)
—
( 1,425
)
Shares issued under 2020 Incentive Award Plan
1,401,548
—
—
—
—
—
—
—
—
—
—
Sale of a business
—
—
—
—
—
—
—
( 2,431
)
( 2,431
)
( 980
)
( 3,411
)
Stock-based compensation expense
—
—
—
—
7,617
—
—
—
7,617
—
7,617
Balance at June 30, 2024
323,020,596
$
32
8,875,170
$
( 39,724
)
$
3,452,358
$
( 2,420,792
)
$
( 6,707
)
$
( 11,433
)
$
973,734
$
—
$
973,734
Advantage
Common Stock
Treasury Stock
Additional
Loans
Other
Solutions Inc.
Total
Paid-in
Accumulated
to
Comprehensive
Stockholders'
Noncontrolling
Stockholders'
(in thousands, except share data)
Shares
Amount
Shares
Amount
Capital
Deficit
Topco
Income (Loss)
Equity
Interests
Equity
Balance at April 1, 2023
323,555,298
$
32
1,610,014
$
( 12,567
)
$
3,417,561
$
( 2,294,696
)
$
( 6,369
)
$
( 17,325
)
$
1,086,636
$
103,387
$
1,190,023
Comprehensive (loss) income
Net (loss) income
—
—
—
—
—
( 8,762
)
—
—
( 8,762
)
828
( 7,934
)
Foreign currency translation adjustments
—
—
—
—
—
—
—
3,722
3,722
1,872
5,594
Total comprehensive (loss) income
—
—
—
—
—
—
—
—
( 5,040
)
2,700
( 2,340
)
Interest on loans to Karman Topco L.P.
—
—
—
—
—
—
( 6
)
—
( 6
)
—
( 6
)
Equity-based compensation of Karman Topco L.P.
—
—
—
—
( 1,218
)
—
—
—
( 1,218
)
—
( 1,218
)
Shares issued under 2020 Incentive Award Plan
925,845
—
—
—
—
—
—
—
—
—
—
Stock-based compensation expense
—
—
—
—
11,147
—
—
—
11,147
—
11,147
Balance at June 30, 2023
324,481,143
$
32
1,610,014
$
( 12,567
)
$
3,427,490
$
( 2,303,458
)
$
( 6,375
)
$
( 13,603
)
$
1,091,519
$
106,087
$
1,197,606
See Notes to the Condensed Consolidated Financial Statements.
5
Accumulated
Advantage
Common Stock
Treasury Stock
Additional
Loans
Other
Solutions Inc.
Total
Paid-in
Accumulated
to
Comprehensive
Stockholders'
Noncontrolling
Stockholders'
(in thousands, except share data)
Shares
Amount
Shares
Amount
Capital
Deficit
Topco
Income (Loss)
Equity
Interests
Equity
Balance at January 1, 2024
322,235,261
$
32
3,600,075
$
( 18,949
)
$
3,449,261
$
( 2,314,650
)
$
( 6,387
)
$
( 3,945
)
$
1,105,362
$
( 1,285
)
$
1,104,077
Comprehensive (loss) income
Net (loss) income
—
—
—
—
—
( 106,142
)
—
—
( 106,142
)
2,192
( 103,950
)
Foreign currency translation adjustments
—
—
—
—
—
—
—
( 5,057
)
( 5,057
)
73
( 4,984
)
Total comprehensive (loss) income
—
—
—
—
—
—
—
—
( 111,199
)
2,265
( 108,934
)
Interest on loans to Karman Topco L.P.
—
—
—
—
—
—
( 320
)
—
( 320
)
—
( 320
)
Purchase of treasury stock
( 5,275,095
)
—
5,275,095
( 20,775
)
—
—
—
—
( 20,775
)
—
( 20,775
)
Equity-based compensation of Karman Topco L.P.
—
—
—
—
( 480
)
—
—
—
( 480
)
—
( 480
)
Shares issued under 2020 Employee Stock Purchase Plan
581,954
—
—
—
1,167
—
—
—
1,167
—
1,167
Payments for taxes related to net share settlement under 2020 Incentive Award Plan
—
—
—
—
( 11,113
)
—
—
—
( 11,113
)
—
( 11,113
)
Shares issued under 2020 Incentive Award Plan
5,478,476
—
—
—
—
—
—
—
—
—
—
Sale of a business
—
—
—
—
—
—
—
( 2,431
)
( 2,431
)
( 980
)
( 3,411
)
Stock-based compensation expense
—
—
—
—
13,523
—
—
—
13,523
—
13,523
Balance at June 30, 2024
323,020,596
$
32
8,875,170
$
( 39,724
)
$
3,452,358
$
( 2,420,792
)
$
( 6,707
)
$
( 11,433
)
$
973,734
$
—
$
973,734
Advantage
Additional
Loans
Other
Solutions Inc.
Total
Common Stock
Treasury Stock
Paid-in
Accumulated
to
Comprehensive
Stockholders'
Noncontrolling
Stockholders'
(in thousands, except share data)
Shares
Amount
Shares
Amount
Capital
Deficit
Topco
Income (Loss)
Equity
Interests
Equity
Balance at January 1, 2023
319,690,300
$
32
1,610,014
$
( 12,567
)
$
3,408,836
$
( 2,247,109
)
$
( 6,363
)
$
( 18,849
)
$
1,123,980
$
101,744
$
1,225,724
Comprehensive (loss) income
Net (loss) income
—
—
—
—
—
( 56,349
)
—
—
( 56,349
)
658
( 55,691
)
Foreign currency translation adjustments
—
—
—
—
—
—
—
5,246
5,246
3,685
8,931
Total comprehensive (loss) income
—
—
—
—
—
—
—
—
( 51,103
)
4,343
( 46,760
)
Interest on loans to Karman Topco L.P.
—
—
—
—
—
—
( 12
)
—
( 12
)
—
( 12
)
Equity-based compensation of Karman Topco L.P.
—
—
—
—
( 3,487
)
—
—
—
( 3,487
)
—
( 3,487
)
Shares issued under 2020 Employee Stock Purchase Plan
674,976
—
—
—
1,193
—
—
—
1,193
—
1,193
Payments for taxes related to net share settlement under 2020 Incentive Award Plan
—
—
—
—
( 1,277
)
—
—
—
( 1,277
)
—
( 1,277
)
Shares issued under 2020 Incentive Award Plan
4,115,867
—
—
—
—
—
—
—
—
—
—
Stock-based compensation expense
—
—
—
—
22,225
—
—
—
22,225
—
22,225
Balance at June 30, 2023
324,481,143
$
32
1,610,014
$
( 12,567
)
$
3,427,490
$
( 2,303,458
)
$
( 6,375
)
$
( 13,603
)
$
1,091,519
$
106,087
$
1,197,606
See Notes to the Condensed Consolidated Financial Statements.
6
ADVANTAGE SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
(in thousands)
2024
2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$
( 103,950
)
$
( 55,524
)
Net income (loss) from discontinued operations, net of tax
59,199
( 6,606
)
Net loss from continuing operations
( 163,149
)
( 48,918
)
Adjustments to reconcile net loss to net cash provided by operating activities
Noncash interest income
( 5,427
)
( 9,500
)
Deferred financing fees related to repricing of long-term debt
1,079
—
Amortization of deferred financing fees
3,470
4,238
Impairment of goodwill
99,670
—
Depreciation and amortization
101,065
105,021
Change in fair value of warrant liability
( 399
)
—
Fair value adjustments related to contingent consideration
1,678
8,969
Deferred income taxes
( 29,546
)
( 33,403
)
Equity-based compensation of Karman Topco L.P.
( 480
)
( 3,487
)
Stock-based compensation
16,082
20,417
Loss from unconsolidated investments
( 123
)
( 3,002
)
Distribution received from unconsolidated affiliates
3,289
1,611
Gain on repurchases of Senior Secured Notes and Term Loan Facility debt
( 5,103
)
( 4,969
)
Changes in operating assets and liabilities, net of effects from divestitures:
Accounts receivable, net
9,268
32,854
Prepaid expenses and other assets
26,233
63,109
Accounts payable
32,834
( 35,944
)
Accrued compensation and benefits
( 21,602
)
2,435
Deferred revenues
2,449
12,501
Other accrued expenses and other liabilities
( 27,233
)
( 11,523
)
Net cash provided by operating activities from continuing operations
44,055
100,409
Net cash provided by operating activities from discontinued operations
6,368
4,581
Net cash provided by operating activities
50,423
104,990
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment in unconsolidated affiliates
( 10,932
)
—
Purchase of property and equipment
( 25,029
)
( 14,046
)
Proceeds from divestitures, net of cash
146,828
12,763
Net cash provided by (used in) investing activities from continuing operations
110,867
( 1,283
)
Net cash used in investing activities from discontinued operations
( 7,332
)
( 4,506
)
Net cash provided by (used in) investing activities
103,535
( 5,789
)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under lines of credit
—
72,735
Payments on lines of credit
—
( 71,278
)
Principal payments on long-term debt
( 6,637
)
( 6,741
)
Repurchases of Senior Secured Notes and Term Loan Facility debt
( 71,749
)
( 49,427
)
Debt issuance costs
( 971
)
—
Proceeds from issuance of common stock
1,167
1,193
Payments for taxes related to net share settlement under 2020 Incentive Award Plan
( 11,113
)
( 1,277
)
Contingent consideration payments
( 4,455
)
( 1,867
)
Holdback payments
—
( 656
)
Redemption of noncontrolling interest
—
( 154
)
Purchase of treasury stock
( 20,775
)
—
Net cash used in financing activities from continuing operations
( 114,533
)
( 57,472
)
Net cash (used in) provided by financing activities from discontinued operations
( 4,243
)
397
Net cash used in financing activities
( 118,776
)
( 57,075
)
Net effect of foreign currency changes on cash from continuing operations
( 2,579
)
1,843
Net effect of foreign currency changes on cash from discontinued operations
( 435
)
( 349
)
Net effect of foreign currency changes on cash
( 3,014
)
1,494
Net change in cash, cash equivalents and restricted cash
32,168
43,620
Cash, cash equivalents and restricted cash, beginning of period
137,202
138,532
Cash, cash equivalents and restricted cash, end of period
169,370
182,152
Less: Cash, cash equivalents and restricted cash of discontinued operations
—
2,824
Cash, cash equivalents and restricted cash, end of period
$
169,370
$
179,328
SUPPLEMENTAL CASH FLOW INFORMATION
(Gain) loss on divestitures from discontinued operations
$
( 70,195
)
$
17,655
Purchase of property and equipment recorded in accounts payable and accrued expenses
$
10,660
$
1,507
See Notes to the Condensed Consolidated Financial Statements.
7
ADVANTAGE SOLUTIONS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization and Significant Accounting Policies
Advantage Solutions Inc. (the “Company”) is a provider of outsourced solutions to consumer goods companies and retailers. The Company’s Class A common stock is listed on the Nasdaq Global Select Market under the symbol “ADV” and warrants to purchase the Class A common stock at an exercise price of $ 11.50 per share are listed on the Nasdaq Global Select Market under the symbol “ADVWW”.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. The unaudited condensed consolidated financial statements do not include all of the information required by accounting principles generally accepted in the United States (“GAAP”). The Condensed Consolidated Balance Sheet at December 31, 2023 was derived from the audited Consolidated Balance Sheet at that date and does not include all the disclosures required by GAAP. In the opinion of management, all adjustments which are of a normal recurring nature and necessary for a fair statement of the results as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 have been reflected in the condensed consolidated financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2023 and the related footnotes thereto. Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period.
The Company has reorganized its portfolio of businesses into a new, simplified structure that more closely aligns its business capabilities with economic buyers. As a result of this reorganization, the Company revised its reportable segments and identified non-core businesses for disposition (“Divestiture plan”). In the first quarter of 2024, the Company determined its Divestiture plan met the criteria for discontinued operations as it represented a strategic shift that had a major effect on the Company’s operations and financial results. As such, the results of businesses meeting the criteria to be classified as held for sale or disposed of in the current or prior periods in accordance with the Company’s Divestiture plan have been reclassified to discontinued operations. Refer to Note 2— Held for Sale, Divestitures and Discontinued Operations for additional information on the Company’s assets and liabilities classified as held for sale and the Company's discontinued operations.
Certain prior period balances related to the Company's reportable segments and discontinued operations have been reclassified to conform to the current presentation in the condensed consolidated financial statements and accompanying notes. The notes to the condensed consolidated financial statements are presented on a continuing operations basis unless otherwise noted. Refer to Note 8— Segments for additional information on the Company’s reportable segments. Refer to Note 2— Held for Sale, Divestitures and Discontinued Operations for additional information on the Company’s discontinued operations.
Reportable Segments
Effective January 1, 2024, Advantage Solutions Inc. revised its reportable segments to align with the Company's business strategy, and the manner in which the Chief Executive Officer, the Company's chief operating decision maker (“CODM”), assesses performance and makes decisions regarding the allocation of resources for the Company. The Company’s revised operating and reportable segments consist of Branded Services, Experiential Services, and Retailer Services. This change had no impact on the Company’s Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Comprehensive Loss, Condensed Consolidated Statements of Stockholders' Equity and Condensed Consolidated Statements of Cash Flows. Prior period segment results have been reclassified to reflect the Company’s new reportable segments on a continuing operations basis. Refer to Note 8— Segments for additional information on the Company’s reportable segments.
8
Discontinued Operations
The Company presents discontinued operations when there is a disposal of a component or a group of components that represents a strategic shift that will have a major effect on operations and financial results. The results of discontinued operations are reported in net income (loss) from discontinued operations in the condensed consolidated statements of operations for all periods presented, commencing in the period in which the business is either disposed of or is classified as held for sale, including any gain or loss recognized on closing or adjustment of the carrying amount to fair value less costs to sell. Assets and liabilities related to a business classified as held for sale which also meets the criteria for discontinued operations are segregated in the condensed consolidated balance sheets for the current and prior periods presented. Cash flows for continuing and discontinued operations are segregated in the condensed consolidated cash flows for the current and prior periods. When proceeds are not utilized to paydown long-term debt, the assets and liabilities associated with discontinued operations in the current period balance sheet are classified as current.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired in an acquisition. The Company tests for impairment of goodwill at the reporting unit level. The Company generally combines components that have similar economic characteristics, nature of services, types of clients, distribution methods and regulatory environment. In connection with the Company’s reorganization and the associated change in operating segments, the Company reassessed its reporting units and concluded that it has five reporting units (Branded Services, Branded Agencies, Experiential Services, Merchandising and Retailer Agencies). As a result, the Company performed the required impairment assessments directly before and immediately after the change in reporting units as of January 1, 2024. The assets and liabilities were reassigned to the applicable reporting units and allocated goodwill using the relative fair value approach. The estimated fair value of the underlying reporting units was determined based on a combination of the income and market approaches. The income approach utilizes estimates of discounted cash flows for the underlying business, which requires assumptions for growth rates, EBITDA margins, terminal growth rate, discount rate, and incremental net working capital, all of which require significant management judgment. The market approach applies market multiples derived from historical earnings data of selected guideline publicly traded companies that are first screened by industry group and then further narrowed on the reporting units' business descriptions, markets served, competitors, EBITDA margins and revenue size. The Company compared a weighted average of the output from the income and market approaches to compute the fair value of the reporting units. The assumptions in the income and market approach are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The uncertainty and volatility in the economic environment in which the Company operates could have an impact on the Company's future growth and could result in future impairment charges. There is no assurance that actual future earnings, cash flows or other assumptions for the reporting units will not significantly decline from these projections.
In 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 %.
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 assets, liabilities and prospective cash flows of the Branded Agencies reporting unit. As a result of the impairment test performed, 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. As a result of this charge, an immaterial amount of goodwill remains in this reporting unit.
Indefinite Lived Intangible Assets
Intangible assets with indefinite useful lives are not amortized but tested annually for impairment, at the beginning of the fourth quarter, or more often if events occur or circumstances change that would create a triggering event. Prior to the segment change, the Company went to market with the Advantage Trade Name being specifically used and assessed for impairment in the Sales and Marketing businesses. As a result of the change in the Company's reportable segments effective as of January 1, 2024, the Company determined, based on the change in the planned use of the
9
Advantage Trade Name intangible asset, that the Advantage Trade Name should be considered an entity-wide asset for reporting and impairment testing purposes. As of January 1, 2024, the Company concluded there was a triggering event for an interim impairment assessment due to the change in unit of account of the indefinite-lived intangibles. Based on the interim impairment assessment, the estimated fair value exceeded the carrying value by approximately 6 %, thus no impairment was recorded. For the three months ended June 30, 2024, no events or circumstances were noted that would indicate a triggering event for the Company’s intangible assets with indefinite useful lives. The uncertainty and volatility in the economic environment in which the Company operates could have an impact on the Company’s future growth and could result in future impairment charges. There is no assurance that actual cash flows or other assumptions for the this intangible will not significantly decline from these projections.
Revenue Recognition
The Company recognizes revenue when control of promised goods or services is transferred to the client in an amount that reflects the consideration that the Company expects to be entitled to in exchange for such goods or services. Substantially all of the Company’s contracts with clients involve the transfer of a service to the client, which represents a performance obligation that is satisfied over time because the client simultaneously receives and consumes the benefits of the services provided. In most cases, the contracts provide for a performance obligation that is comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). For these contracts, the Company allocates the ratable portion of the consideration based on the services provided in each period of service to such period.
Revenues related to the Branded Services segment are primarily recognized in the form of commissions, fee-for-service and cost-plus fees for providing headquarter relationship management, execution of merchandising strategies and omni-commerce marketing services.
Revenues within the Branded Services segment are further disaggregated between brokerage services, branded merchandising services, omni-commerce marketing services, and revenues related to the Company's international joint venture (prior to the deconsolidation during fiscal year 2023). Brokerage services revenues are primarily outsourced sales and services for branded consumer goods manufacturers at retailer headquarters, in-store and online. Branded merchandising services relate to merchandising in-store and online for branded consumer goods manufacturers. Omni-commerce marketing services primarily relate to digital and field marketing services.
Experiential Services segment revenues are primarily recognized in the form of fee-for-service and cost-plus fees for providing in-store, digital sampling and demonstrations, where the Company manages highly customized, large-scale sampling programs for leading brands and retailers.
Retailer Services segment revenues are primarily recognized in the form of commissions, fee-for-service and cost-plus fees for providing consulting services related to private brand development, the execution of merchandising strategies and marketing strategies within retailer locations, including retail media networks and analyzing shopper behavior.
Revenues within the Retailer Services segment are further disaggregated between advisory services, retailer merchandising services and agency services to retailers. Advisory services primarily consist of consulting services related to private brand development. Retailer merchandising services primarily relate to the execution of merchandising strategies. Agency services primarily consist of providing marketing strategies within retail locations.
10
Disaggregated revenues were as follows:
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands)
2024
2023
2024
2023
Branded Services
Brokerage services
$
122,973
$
131,398
$
249,995
$
263,062
Branded merchandising services
108,625
111,569
213,772
218,432
Omni-commerce marketing services
90,742
103,677
187,627
200,439
International joint venture
—
100,621
—
194,029
Total Branded Services revenue
322,340
447,265
651,394
875,962
Experiential Services
Experiential services
319,508
285,174
626,859
542,341
Total Experiential Services revenue
319,508
285,174
626,859
542,341
Retailer Services
Retailer merchandising services
183,128
184,581
354,715
373,636
Advisory services
32,064
33,472
70,776
71,260
Agency services
16,317
13,266
31,025
25,272
Total Retailer Services revenue
231,509
231,319
456,516
470,168
Total revenues
$
873,357
$
963,758
$
1,734,769
$
1,888,471
Contract liabilities represent deferred revenues, which are cash payments that are received in advance of the Company’s satisfaction of the applicable obligation and are included in Deferred revenues in the Condensed Consolidated Balance Sheets. Deferred revenues are recognized as revenues when the related services are performed for the client. Revenues recognized during the three and six months ended June 30, 2024 that were included in Deferred revenues as of December 31, 2023 were $ 3.5 million and $ 16.8 million, respectively. Revenues recognized during the three and six months ended June 30, 2023 included in Deferred revenues as of December 31, 2022 were $ 4.4 million and $ 14.5 million, respectively.
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 the Company beginning in fiscal year 2025, with early adoption permitted. The new standard is expected to be applied prospectively, but retrospective application is permitted. The Company is currently evaluating the impact of ASU 2023-09 on the consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which requires entities to disclose incremental segment information on an annual and interim basis, including significant segment expenses and measures of profit or loss that are regularly provided to the CODM. The standard is effective for the Company beginning in fiscal year 2024 and interim periods within fiscal year 2025, with early adoption permitted. The Company is currently evaluating the impact of ASU 2023-07 on the consolidated financial statements and related disclosures and expects to adopt the new standard using a retrospective approach.
In March 2024, the Securities and 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 the Company's fiscal year reporting beginning October 4, 2025, pending resolution of the stay. The Company is currently evaluating the impact of the rules on the consolidated financial statements and related disclosures.
11
Other new accounting pronouncements recently issued or newly effective were not applicable to the Company, did not have a material impact on the condensed consolidated financial statements or are not expected to have a material impact on the condensed consolidated financial statements.
2. Held for Sale, Divestitures and Discontinued Operations
Held for Sale
As of June 30, 2024 and December 31, 2023, the Company classified certain assets and liabilities as held for sale in the Condensed Consolidated Balance Sheets, primarily related to assets and liabilities to be disposed of by sale (“disposal groups”). The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less costs to sell is reported as an adjustment to the carrying value of the disposal group. The assets and liabilities related to these businesses are included in the discontinued operations captions in the Condensed Consolidated Balance Sheets for all periods presented.
2023 Divestitures
In 2023, the Company entered into an agreement to sell certain assets and liabilities (collectively, the “2023 Divestitures”). The Company determined that the disposal groups did not meet the criteria for classification as discontinued operations as of June 30, 2023. During the three and six months ended June 30, 2023, the Company recorded a loss of $ 1.2 million and $ 17.7 million, respectively, on divestitures as a component of “Net income (loss) from discontinued operations, net of tax” in the Condensed Consolid ated Statements of Operations and Comprehensive Loss.
2024 Divestitures
On January 31, 2024, the Company sold a collection of foodservice businesses, previously classified as held for sale (as current assets) as of December 31, 2023. As part of the sale, the foodservice businesses were combined with an entity owned by the buyer, with the Company receiving approximately $ 91.0 million, subject to working capital adjustments and an ongoing 7.5 % interest in the combined business. The ongoing ownership interest represents a continuing involvement which the Company has determined represents an equity method investment. Upon the close of the transaction, the retained 7.5 % interest was recognized at fair value of $ 8.4 million, valued using unobservable inputs (i.e., Level 3 inputs), primarily discounted cash flow.
The investment is reported in “Investments in unconsolidated affiliates” on the Condensed Consolidated Balance Sheets and an immaterial amount of equity income (loss) reported in “Income from unconsolidated investments” on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2024. Transactions between the Company and the combined foodservice entity are considered to be related-party transactions subsequent to the divesture.
During the three months ended June 30, 2024, the Company sold two agencies in the Branded Services segment, one agency in the Experiential Services segment and one agency in the Retailer Services segment (collectively the “ 2024 Divestitures”). The Company received $ 65.2 million including estimated working capital adjustments.
During the three and six months ended June 30, 2024, the Company recorded a gain from the 2024 Divestitures of $ 13.2 million and $ 70.2 million, respectively, as a component of “Net income (loss) from discontinued operations, net of tax” in the Condensed Consolid ated Statements of Operations and Comprehensive Loss. Proceeds from the sales were classified as cash provided by investing activities from continuing operations in the Condensed Consolidated Statements of Cash Flows.
As of June 30, 2024, certain assets and liabilities of the Jun Group business were classified as held for sale. On July 31, 2024, the Company completed the sale of the Jun Group business in exchange for proceeds of approximately $ 185.0 million less any adjustments. The Company received approximately $ 130.0 million in cash upon completion of the sale. As part of the purchase agreement, the buyer has agreed to remit the remaining consideration to the Company in two additional installments of $ 22.5 million ($ 27.5 million less $ 5 million estimated adjustments) and $ 27.5 million, 12 and 18 months , respectively, after the completion of the sale.
12
Discontinued Operations
The Company classifies a business that has been disposed of or is classified as held for sale as a discontinued operation when the criteria prescribed by the FASB Accounting Standards Codification (“ASC”) 205, Presentation of Financial Statements are met. While the 2023 Divestitures did not previously qualify for presentation as discontinued operations, the Company concluded that, in the aggregate, the sales of these businesses along with the 2024 Divestitures and businesses held for sale as of June 30, 2024 (collectively, the “discontinued operations” that are all part of the divestiture plan) met the criteria for discontinued operations presentation as their dispositions represent a strategic shift that has had a major effect on the Company's operations and financial results. As a result, each of these businesses has been reclassified to discontinued operations in the Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows for all periods presented.
As part of the agreements for certain of the divestitures the Company has agreed to provide certain transitional services as detailed within respective transition services agreements for a period of time after sale. Income and expenses related to these transitional services are immaterial and are reported in “Net loss from continuing operations” on the Condensed Consolidated Statements of Operations and Comprehensive Loss.
The following table presents the summarized balance sheets of discontinued operations.
(in thousands)
June 30, 2024
December 31, 2023
Carrying amounts of major classes of assets
Cash and cash equivalents
$
—
$
5,641
Accounts receivable, net of allowance for expected credit losses of $ 418 and $ 2,834 , respectively
14,922
56,848
Prepaid and other current assets
882
6,839
Property and equipment, net
4,488
10,245
Goodwill
122,600
160,400
Other intangible assets, net
10,000
41,025
Investments in unconsolidated affiliates
—
564
Other assets
—
4,040
Total assets of discontinued operations (1)
152,892
285,602
Carrying amounts of major classes of liabilities
Current portion of long-term debt
$
—
$
306
Accounts payable
1,956
9,737
Accrued compensation and benefits
1,297
5,729
Other accrued expenses
—
3,210
Deferred revenues
883
3,137
Long-term debt, net of current portion
—
4,666
Other liabilities
—
3,024
Total liabilities of discontinued operations (1)
$
4,136
$
29,809
Total net assets of the disposal group classified as discontinued operations
$
148,756
$
255,793
(1) Certain assets and liabilities from discontinued operations are classified as noncurrent at December 31, 2023 as they did not previously meet the held-for-sale criteria at that date.
13
The following table presents the summarized statements of operations of discontinued operations.
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands)
2024
2023
2024
2023
Revenues
$
28,874
$
73,297
$
73,508
$
160,567
Cost of revenues (exclusive of depreciation and amortization shown separately below)
20,308
57,212
55,527
132,506
Selling, general, and administrative expenses
10,042
3,646
12,578
6,844
Depreciation and amortization
1,883
4,261
4,491
8,821
(Gain) loss on divestitures
( 13,179
)
1,158
( 70,195
)
17,655
Total operating expenses
19,054
66,277
2,401
165,826
Operating income (loss) from discontinued operations
9,820
7,020
71,107
( 5,259
)
Other expenses:
Interest expense, net
16
14
48
43
Total other expenses
16
14
48
43
Income (loss) before income taxes from discontinued operations
9,804
7,006
71,059
( 5,302
)
(Benefit from) provision for income taxes from discontinued operations
( 2,377
)
1,828
11,860
1,304
Net income (loss) from discontinued operations, net of tax
12,181
5,178
59,199
( 6,606
)
Less: net income (loss) from discontinued operations attributable to noncontrolling interest
—
7
2,192
( 84
)
Net income (loss) from discontinued operations attributable to stockholders of Advantage Solutions Inc.
$
12,181
$
5,171
$
57,007
$
( 6,522
)
3. Goodwill and Intangible Assets
The following tables set forth information for goodwill by reportable segment:
(in thousands)
Branded Services
Retailer Services
Experiential Services
Total
Balance at December 31, 2023
$
252,809
$
217,955
$
239,427
$
710,191
Impairment charge
( 99,670
)
—
—
$
( 99,670
)
Balance at June 30, 2024
$
153,139
$
217,955
$
239,427
$
610,521
Accumulated impairment losses related to goodwill were $ 2.1 billion and $ 2.0 billion as of June 30, 2024 and December 31, 2023, respectively.
The following tables set forth information for intangible assets:
June 30, 2024
(amounts in thousands)
Weighted Average Useful Life
Gross Carrying
Value
Accumulated
Amortization
Accumulated
Impairment Charges
Net Carrying
Value
Finite-lived intangible assets:
Client relationships
14 years
$
2,282,633
$
1,501,507
$
—
$
781,126
Trade names
10 years
88,600
57,923
—
30,677
Total finite-lived intangible assets
2,371,233
1,559,430
—
811,803
Indefinite-lived intangible assets:
Trade name
1,480,000
—
828,500
651,500
Total other intangible assets
$
3,851,233
$
1,559,430
$
828,500
$
1,463,303
14
December 31, 2023
(amounts in thousands)
Weighted Average Useful Life
Gross Carrying
Value
Accumulated
Amortization
Accumulated
Impairment Charges
Net Carrying
Value
Finite-lived intangible assets:
Client relationships
14 years
$
2,282,792
$
1,417,570
$
—
$
865,222
Trade names
10 years
88,600
53,494
—
35,106
Total finite-lived intangible assets
2,371,392
1,471,064
—
900,328
Indefinite-lived intangible assets:
Trade name
1,480,000
—
828,500
651,500
Total other intangible assets
$
3,851,392
$
1,471,064
$
828,500
$
1,551,828
Amortization of intangible assets was $ 44.2 million an d $ 47.0 million for the three months ended June 30, 2024 and 2023 , respectively, and $ 88.5 million and $ 94.0 million for the six months ended June 30, 2024 and 2023, respectively.
As of June 30, 2024, estimated future amortization expense of the Company’s finite-lived intangible assets are as follows:
(in thousands)
Remainder of 2024
$
88,260
2025
171,718
2026
169,230
2027
167,539
2028
133,088
Thereafter
81,968
Total amortization expense
$
811,803
4. Debt
June 30,
December 31,
(in thousands)
2024
2023
Term Loan Facility
$
1,142,432
$
1,149,057
Senior Secured Notes
665,500
743,000
Other notes
112
426
Total long-term debt
1,808,044
1,892,483
Less: current portion
13,275
13,274
Less: debt issuance costs
25,573
31,091
Long-term debt, net of current portion
$
1,769,196
$
1,848,118
As of June 30, 2024, the Company had $ 1.1 billion of debt outstanding under the Term Loan Facility (as defined below) and $ 665.5 million of debt outstanding under the Notes (both as defined in the Annual Report on Form 10-K filed March 1, 2024 for the year ended December 31, 2023 (the “2023 Annual Report”)) with maturity dates of October 28, 2027 and November 15, 2028 , respectively. In April 2024 (the “Third Lien Amendment Effective Date” ), the Company amended the Term Loan Facility to (i) reduce the applicable interest rate margin (a) from 4.50 % to 4.25 % for SOFR loans or (b) from 3.50 % to 3.25 % for base rate loans; and (ii) reset the period for six months following the Third Lien Amendment Effective Date in which a 1.00 % prepayment premium shall apply to any prepayment of the term loans in connection with a Repricing Event (as defined in the amended First Lien Credit Agreement). The Term Loan Facility bears interest at a floating rate of Term SOFR plus an applicable margin of 4.25 % per annum, subject to an additional spread adjustment on SOFR ranging from 0.11 % to 0.26 %. Interest on the Notes is payable semi-annually in arrears at a rate of 6.50 % per annum.
The Company was in compliance with all of its affirmative and negative covenants under the Term Loan Facility and Notes as of June 30, 2024 . In addition, the Company is required to repay the principal under the Term Loan Facility in the greater amount of its excess cash flow, as such term is defined in the agreement governing the Term Loan Facility, or $ 13.3 million, per annum, in quarterly payments. The Company made the minimum quarterly principal
15
payments of $ 3.3 million and $ 6.6 million during the three and six months ended June 30, 2024 and 2023, respectively. No payments under the excess cash flow calculation were required in such periods. In May 2023 (the “Second Lien Amendment Effective Date”), the Company amended the Term Loan Facility to replace the U.S. Dollar LIBOR provisions with SOFR, effective June 30, 2023.
The Company voluntarily repurchased an aggregate of $ 26.5 million and $ 77.5 million principal amount of its Senior Secured Notes during the three and six months ended June 30, 2024, respectively. The Company recognized a gain on the repurchase of the Senior Secured Notes of $ 2.4 million and $ 5.1 million for the three and six months ended June 30, 2024, respectively, as a component of “Interest expense, net” in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
The Company voluntarily repurchased an aggregate of $ 52.4 million and $ 54.4 million principal amount of its Term Loan Facility during the three and six months ended June 30, 2023, respectively. The Company recognized a gain on the repurchase of $ 4.7 million and $ 5.0 million for the three and six months ended June 30, 2023, respectively, as a component of “Interest expense, net” in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
As of June 30, 2024, the Company had no borrowings under the Revolving Credit Facility (as defined in the 2023 Annual Report). All borrowings under the Revolving Credit Facility are subject to the satisfaction of certain customary conditions. Borrowings under the credit agreement bear interest at a floating rate, which at the option of the Company may be either (i) a base rate or Canadian Prime Rate plus an applicable margin of 0.75 %, 1.00 %, or 1.25 % per annum or (ii) Term SOFR or Alternative Currency Spread plus an applicable margin of 1.75 %, 2.00 % or 2.25 % per annum. The Company is required to pay a commitment fee ranging from 0.250 % to 0.375 % per annum in respect of the average daily unused commitments under the Revolving Credit Facility.
5. Fair Value of Financial Instruments
The Company measures fair value based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include: Level 1, defined as observable inputs, such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The following table sets forth the Company’s financial assets and liabilities measured on a recurring basis at fair value, categorized by input level within the fair value hierarchy.
June 30, 2024
(in thousands)
Fair Value
Level 1
Level 2
Level 3
Assets measured at fair value
Derivative financial instruments
$
15,796
$
—
$
15,796
$
—
Total assets measured at fair value
$
15,796
$
—
$
15,796
$
—
Liabilities measured at fair value
Warrant liability
$
268
$
—
$
268
$
—
Contingent consideration liabilities
1,200
—
—
1,200
Total liabilities measured at fair value
$
1,468
$
—
$
268
$
1,200
December 31, 2023
(in thousands)
Fair Value
Level 1
Level 2
Level 3
Assets measured at fair value
Derivative financial instruments
$
26,344
$
—
$
26,344
$
—
Total assets measured at fair value
$
26,344
$
—
$
26,344
$
—
Liabilities measured at fair value
Warrant liability
$
667
$
—
$
667
$
—
Contingent consideration liabilities
18,355
—
—
18,355
Total liabilities measured at fair value
$
19,022
$
—
$
667
$
18,355
16
Interest Rate Cap Agreements
The Company had interest rate cap and collar contracts with an aggregate notional value of principal of $ 950.0 million as of June 30, 2024 and December 31, 2023 from various financial institutions to manage the Company’s exposure to interest rate movements on variable rate credit facilities. The interest rate cap and collar contracts will mature on December 16, 2024 and April 5, 2026, respectively.
The fair value of the Company’s outstanding interest rate caps and collars of $ 15.8 million and $ 26.3 million, respectively, were included in “Prepaid expenses and other current assets” and "Other assets" in the Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023, respectively, with changes in fair value recognized as a component of “Interest expense, net” in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
During the three months ended June 30, 2024 and 2023, the Company recorded a gain o f $ 1.2 million and $ 11.4 million, respectively, within “ Interest expense , net, ” related to changes in the fair value of its derivative instruments. During the six months ended June 30, 2024 and 2023 , the Company recorded a gain of $ 5.4 million and $ 9.5 million, respectively, within “ Interest expense , ” net, related to changes in the fair value of its derivative instruments.
Subsequent to June 30, 2024 the Company entered into two interest rate collar contracts with a notional value of principal of $ 200.0 million each. The interest rate collar contracts are effective December 16, 2024 and will mature on April 5, 2027 and 2028.
Contingent Consideration Liabilities
During each reporting period, the Company measures the fair value of its contingent consideration liabilities by evaluating the significant unobservable inputs and probability weightings using Monte Carlo simulations. Any resulting decreases or increases in the fair value result in a corresponding gain or loss reported in “Selling, general, and administrative expenses” in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
As of June 30, 2024 , the maximum potential payment outcomes were $ 6.5 million . The following table summarizes the changes in the carrying value of estimated contingent consideration liabilities:
June 30,
(in thousands)
2024
2023
Beginning of the period
$
18,355
$
14,629
Changes in fair value
1,678
8,969
Payments
( 18,833
)
( 6,082
)
End of the period
$
1,200
$
17,516
Long-term Debt
The following tables set forth the carrying values and fair values of the Company’s financial liabilities measured on a recurring basis, categorized by input level within the fair value hierarchy:
(in thousands)
Carrying Value
Fair Value
(Level 2)
Balance at June 30, 2024
Term Loan Facility
$
1,142,432
$
1,195,261
Senior Secured Notes
665,500
654,865
Other notes
112
113
Total long-term debt
$
1,808,044
$
1,850,239
17
(in thousands)
Carrying Value
Fair Value
(Level 2)
Balance at December 31, 2023
Term Loan Facility
$
1,149,057
$
1,221,012
Senior Secured Notes
743,000
745,223
Other notes
426
100
Total long-term debt
$
1,892,483
$
1,966,335
6. Related Party Transactions
Beginning February 2023, an officer of the Company has served as a member of the board of directors of a client of the Company. The Company recognized $ 1.2 million and $ 1.1 million of revenues from such client during the three months ended June 30, 2024 and 2023, respectively. The Company recognized $ 2.5 million and $ 2.0 million of revenues from such client during the six months ended June 30, 2024 and 2023, respectively. Accounts receivable from this client were $ 0.7 million and $ 0.6 million as of June 30, 2024 and December 31, 2023, respectively.
Beginning July 2023, a member of the board of directors of the Company has served as an officer of a client of the Company. The Company recognized $ 2.3 million and $ 3.9 million of revenues from such client during the three and six months ended June 30, 2024, respectively. Accounts receivable from this client were $ 0.4 million and $ 0.5 million as of June 30, 2024 and December 31, 2023, respectively.
Unconsolidated Affiliates
During the three months ended June 30, 2024 and 2023 , the Company recognized revenues of $ 4.8 million and $ 4.5 million, respectively, from transactions with unconsolidated affiliates. During the six months ended June 30, 2024 and 2023, the Company recognized revenues of $ 11.3 million and $ 8.3 million, respectively, from transactions with unconsolidated affiliates. Accounts receivable from transactions with unconsolidated affiliates were $ 1.1 million and $ 3.7 million as of June 30, 2024 and December 31, 2023 , respectively.
7. Income Taxes
The Company’s effective tax rates were 13.3% and 14.7% for the three months ended June 30, 2024 and 2023, respectively. The effective tax rate is based upon the estimated income or loss before taxes for the year, by jurisdiction, and adjusted for estimated permanent tax adjustments. The difference in the Company’s effective tax rate versus the statutory tax rate is primarily due to additional tax expense from foreign operations, a benefit from the federal work opportunity tax credit ("WOTC") and the effect of a pretax loss. The difference also includes additional tax expense during the three months ended June 30, 2024 due to a goodwill impairment which was treated as nondeductible and a difference in the stock based compensation windfall of $0.4 million for the three months ended June 30, 2024, as compared to a $0.9 million shortfall for the three months ended June 30, 2023.
The income tax benefit from discontinued operations was $ 2.4 million for the three months ended June 30, 2024. The income tax expense from discontinued operations was $ 1.8 million for the three months ended June 30, 2023.
The Company’s effective tax rates were 16.9 % and 16.1 % for the six months ended June 30, 2024 and 2023, respectively. The effective tax rate is based upon the estimated income or loss before taxes for the year, by jurisdiction, and adjusted for estimated permanent tax adjustments. The difference in the Company's effective tax rate versus the statutory tax rate is primarily due to the additional tax expense from foreign operations, a benefit from WOTC and the effect of a pretax loss. The difference also includes additional tax expense during the six months ended June 30, 2024 due to a goodwill impairment which the Company treated as nondeductible, a difference in the windfall of $ 1.1 million of stock based compensation for the six months ended June 30, 2024, as compared to a $ 3.2 million shortfall for the six months ended June 30, 2023, and the release of the valuation allowance of $ 1.1 million that was determined to be not necessary for the six months ended June 30, 2024.
Income tax expense from discontinued operations was $ 11.9 million and $ 1.3 million for the six months ended June 30, 2024 and 2023, respectively. Income tax expense for the six months ended June 30, 2024 and 2023 was
18
impacted primarily by the sale of the divested entities and changes in the income (loss) before income taxes from discontinued operations.
8. Segments
Effective January 1, 2024, the Company revised its reportable segments to align with the Company’s business strategy, and the manner in which the Chief Executive Officer, the Company's CODM, assesses the performance and makes decisions regarding the allocation of resources for the Company. The Company’s revised reportable segments consist of Branded Services, Experiential Services, and Retailer Services. The reportable segments reported below are the segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by the CODM in deciding how to allocate resources and in assessing performance. Through the Company's Branded Services segment, the Company offers capabilities in brokerage, branded merchandising and omni-commerce marketing services to consumer goods manufacturers. Through the Company's Experiential Services segment, the Company expands the reach of consumer brands and retailer products to convert shoppers into buyers through sampling and product demonstration programs executed in-store and online. Through the Company's Retailer Services segment, the Company provides retailers with end-to-end advisory, retailer merchandising, and agency expertise to drive sales. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements; therefore, no additional information is produced or included herein. The Company and its CODM evaluate performance based on revenues and operating (loss) income.
Discontinued operations are not included in the applicable reportable segments. Refer to Note 2— Held for Sale, Divestitures and Discontinued Operations.
(in thousands)
Branded Services
Retailer Services
Experiential Services
Total
Three Months Ended June 30, 2024
Revenues
$
322,340
$
231,509
$
319,508
$
873,357
Depreciation and amortization
$
32,327
$
7,975
$
11,015
$
51,317
Income from unconsolidated investments
$
( 566
)
$
—
$
—
$
( 566
)
Impairment of goodwill
$
99,670
$
—
$
—
$
99,670
Operating (loss) income from continuing operations
$
( 107,280
)
$
9,568
$
6,453
$
( 91,259
)
Three Months Ended June 30, 2023
Revenues
$
447,265
$
231,319
$
285,174
$
963,758
Depreciation and amortization
$
35,609
$
7,866
$
9,002
$
52,477
Operating income from continuing operations
$
8,920
$
1,526
$
4,805
$
15,251
(in thousands)
Branded Services
Retailer Services
Experiential Services
Total
Six Months Ended June 30, 2024
Revenues
$
651,394
$
456,516
$
626,859
$
1,734,769
Depreciation and amortization
$
64,314
$
15,816
$
20,935
$
101,065
Loss from unconsolidated investments
$
123
$
—
$
—
$
123
Impairment of goodwill
$
99,670
$
—
$
—
$
99,670
Operating (loss) income from continuing operations
$
( 129,398
)
$
5,378
$
2,811
$
( 121,209
)
Six Months Ended June 30, 2023
Revenues
$
875,962
$
470,168
$
542,341
$
1,888,471
Depreciation and amortization
$
71,181
$
15,775
$
18,065
$
105,021
Operating income from continuing operations
$
12,206
$
6,589
$
479
$
19,274
19
9. Commitments and Contingencies
Litigation
The Company is involved in various legal matters that arise in the ordinary course of its business. Some of these legal matters purport or may be determined to be class and/or representative actions, or seek substantial damages, or penalties. The Company has accrued amounts in connection with certain legal matters, including with respect to certain of the matters described below. There can be no assurance, however, that these accruals will be sufficient to cover such matters or other legal matters or that such matters or other legal matters will not materially or adversely affect the Company’s financial position, liquidity, or results of operations.
The Company is involved in various litigation and arbitration matters, including purported class or representative actions with respect to matters arising under the California Labor Code and Private Attorneys General Act, and commercial disputes with clients, vendors and third-party sellers of businesses.
In April 2018, the Company acquired the business of Take 5 Media Group (“Take 5”). As a result of an investigation into that business in 2019 that identified certain misconduct, the Company terminated all operations of Take 5 in July 2019 and offered refunds to clients of collected revenues attributable to the period after the Company’s acquisition. The Company refers to the foregoing as the "Take 5 Matter". The Company voluntarily disclosed to the United States Attorney’s Office and the Federal Bureau of Investigation certain misconduct occurring at Take 5. The Company intends to cooperate in this and any other governmental investigations that may arise in connection with the Take 5 Matter. In October 2022, an arbitrator made a final award in favor of the Company. The Company is actively pursuing the collection of this award in state court in Florida. The Company is currently unable to estimate if or when it will be able to collect any amounts associated with this arbitration. The Take 5 Matter may result in additional litigation against the Company, including lawsuits from clients, or governmental investigations, which may expose the Company to potential liability in excess of the amounts being offered by the Company as refunds to Take 5 clients. The Company is currently unable to determine the amount of any potential liability, costs or expenses (above the amounts already being offered as refunds) that may result from any lawsuits or investigations associated with the Take 5 Matter or determine whether any such issues will have any future material adverse effect on the Company’s financial position, liquidity, or results of operations. Although the Company has insurance covering certain liabilities, the Company cannot be certain that the insurance will be sufficient to cover any potential liability or expenses associated with the Take 5 Matter.
10. Stock-Based Compensation
The Company has issued nonqualified stock options, restricted stock units (“RSUs”), and performance restricted stock units (“PSUs”) under the Advantage Solutions Inc. 2020 Incentive Award Plan (the “Plan”). The Company’s restricted stock units and performance restricted stock units, as described below, are expensed based on the fair value at the grant date. The Company recognized stock-based compensation expense and equity-based compensation expense associated with the Common Series C Units of Karman Topco L.P. as follows:
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands)
2024
2023
2024
2023
Restricted stock-based unit awards
$
4,891
$
4,851
$
9,144
$
11,082
Other share-based awards
2,636
3,612
6,938
5,668
Total stock-based compensation before tax
7,527
8,463
16,082
16,750
Tax benefit
( 1,335
)
( 1,991
)
( 2,609
)
( 4,558
)
Total stock-based compensation expense included in net income
$
6,192
$
6,472
$
13,473
$
12,192
Performance Restricted Stock Units
PSUs granted in 2024 are subject to achievement of certain performance conditions based on measurements of the Company’s Adjusted EBITDA margin and cash earnings. The Company’s Adjusted EBITDA margin and cash earnings relative to specified targets will be measured each year over the three-year period of 2024, 2025 and 2026, and an annual achievement percentage will be determined. The annual achievement percentages for each of 2024, 2025 and 2026 will
20
be averaged following the completion of the three-year performance period to determine the final achievement percentage. In addition, the earned PSUs are subject to further adjustment depending on the Company’s performance against a specified peer group for total stockholder return during the three-year performance period. This adjustment can either put a floor or a cap on the calculation of the final PSUs value. Subject to certain termination events, these PSUs are scheduled to cliff-vest on the third-year anniversary of the date of grant and may vest from 0 % to 200 % of the “target” number of PSUs specified in the table below.
PSUs are subject to the recipient's continued service to the Company. PSUs granted in 2021, 2022 and 2023 are subject to achievement of certain performance conditions based on the Company’s revenues (“PSU Revenues”) and Adjusted EBITDA (“PSU EBITDA”) targets in the respective measurement period and the recipient’s continued service to the Company. The measurement period is based on the twelve months of the respective fiscal year. The PSUs are sche duled to vest over a three-year period from the date of grant and may vest from 0 % to 150 % of the number of shares set forth in the table below. The number of PSUs earned shall be adjusted to be proportional to the partial performance between the Threshold Goals, Target Goals and Maximum Goals.
During the six months ended June 30, 2024 , the Human Capital Committee determined that the achievement of the performance objectives applicable to the 2023 PSU EBITDA and 2023 PSU Revenues objectives were 150 % of Target Goals. The value of these PSU awards above the Target Goals remain subject to additional performance requirements (i.e., the above target performance must be maintained in 2024 and 2025, respectively) and service-based vesting conditions. The performance period for those PSU awards up to the Target Goals ended on December 31, 2023, but remain subject to service-based vesting conditions.
The fair value of PSU grants was equal to the closing price of the Company's stock on the date of the applicable grant. The maximum potential expense if the Maximum Goals were met for these awards has been provided in the table below. Recognition of expense associated with performance-based stock is not permitted until achievement of the performance targets are probable of occurring.
Measurement Period
Number of
Shares
Threshold
Number of
Shares
Target
Number of
Shares
Maximum
Weighted
Average Fair
Value per
Share
Maximum Remaining Unrecognized Compensation Expense
Weighted-average remaining requisite service periods
(in thousands, except share and per share data)
2024
532,443
1,064,885
2,129,770
$
4.33
$
4,309,790
2.8 years
2023
1,865,791
3,731,582
5,597,394
$
2.09
$
7,267,756
1.9 years
2022
108,460
216,919
216,919
$
5.12
$
262,243
0.9 years
The following table summarizes the PSU activity for the six months ended June 30, 2024:
Performance Share Units
Weighted Average Grant
Date Fair Value
Outstanding at January 1, 2024
7,339,129
$
2.60
Granted
1,064,885
$
4.33
Distributed
( 2,344,352
)
$
3.33
Forfeited
( 1,497,456
)
$
2.22
PSU performance adjustment
2,326,312
$
2.08
Outstanding at June 30, 2024
6,888,518
$
2.54
Restricted Stock Units
RSUs are subject to the recipient’s continued service to the Company. RSUs are generally scheduled to vest over three years and are subject to the provisions of the agreement under the Plan.
During the six months ended June 30, 2024, the following activities involving RSUs occurred under the Plan:
21
Number of RSUs
Weighted Average Grant
Date Fair Value
Outstanding at January 1, 2024
18,238,623
$
2.92
Granted
5,839,499
$
4.27
Distributed
( 5,976,160
)
$
3.34
Forfeited
( 2,415,489
)
$
2.79
Outstanding at June 30, 2024
15,686,473
$
3.28
As of June 30, 2024 , the total remaining unrecognized compensation cost related to RSUs amounted to $ 30.7 million, which is expected to be amortized over the weighted-average remaining requisite service periods of 2.3 years.
Stock Options
During the six months ended June 30, 2024, the following activities involving stock options occurred under the Plan:
Stock Options
Weighted Average Exercise Price
Outstanding at January 1, 2024
17,375,000
$
6.00
Granted
3,058,018
$
4.33
Forfeited
—
$
—
Cancelled/Expired
—
$
—
Outstanding at June 30, 2024
20,433,018
$
5.75
As of June 30, 2024 , the Company had approximately $ 9.4 million of total unrecognized compensation expense related to stock options, net of forfeitures, which the Company expects to recognize over a weighted-average period of approximately 2.7 years. The weighted average remaining contractual term of all options outstanding as of June 30, 2024 was 8.0 years. The intrinsic value of all outstanding options as of June 30, 2024 was $ 4.8 million based on the market price of the Company's common stock of $ 3.22 per share. There were no options exercised during the six months ended June 30, 2024 and 2023 .
11. Earnings Per Share
The Company calculates earnings per share using a dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income attributable to stockholders of the Company by the weighted-average shares of common stock outstanding without the consideration for potential dilutive shares of common stock. Diluted earnings per share represents basic earnings per share adjusted to include the potentially dilutive effect of performance stock units, restricted stock units, public and private placement warrants, the employee stock purchase plan and stock options. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding and the potential dilutive shares of common stock for the period determined using the treasury stock method. During periods of net loss, diluted loss per share is equal to basic loss per share because the antidilutive effect of potential common shares is disregarded.
22
The following is a reconciliation of basic and diluted net earnings per common share:
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands, except share and earnings per share data)
2024
2023
2024
2023
Basic earnings per share computation:
Numerator:
Net loss from continuing operations
$
( 113,016
)
$
( 13,024
)
$
( 163,149
)
$
( 48,918
)
Less: net income from continuing operations attributable to noncontrolling interest
—
909
—
909
Net loss from continuing operations attributable to stockholders of Advantage Solutions Inc.
$
( 113,016
)
$
( 13,933
)
$
( 163,149
)
$
( 49,827
)
Net income (loss) from discontinued operations, net of tax
$
12,181
$
5,178
$
59,199
$
( 6,606
)
Less: net income (loss) from discontinued operations attributable to noncontrolling interest
—
7
2,192
( 84
)
Net income (loss) from discontinued operations attributable to stockholders of Advantage Solutions Inc.
$
12,181
$
5,171
$
57,007
$
( 6,522
)
Denominator:
Weighted average common shares - basic
322,791,242
324,178,691
322,124,698
322,665,312
Basic loss per common share from continuing operations
$
( 0.35
)
$
( 0.04
)
$
( 0.51
)
$
( 0.15
)
Basic earnings (loss) per common share from discontinued operations
$
0.04
$
0.02
$
0.18
$
( 0.02
)
Basic earnings (loss) per common share from continuing operations attributable to stockholders of Advantage Solutions Inc.
$
( 0.35
)
$
( 0.04
)
$
( 0.51
)
$
( 0.15
)
Basic earnings (loss) per common share from discontinued operations attributable to stockholders of Advantage Solutions Inc.
$
0.04
$
0.02
$
0.18
$
( 0.02
)
Diluted earnings per share computation:
Numerator:
Net loss from continuing operations
$
( 113,016
)
$
( 13,024
)
$
( 163,149
)
$
( 48,918
)
Less: net income from continuing operations attributable to noncontrolling interest
—
909
—
909
Net loss from continuing operations attributable to stockholders of Advantage Solutions Inc.
$
( 113,016
)
$
( 13,933
)
$
( 163,149
)
$
( 49,827
)
Net income (loss) from discontinued operations, net of tax
$
12,181
$
5,178
$
59,199
$
( 6,606
)
Less: net income (loss) from discontinued operations attributable to noncontrolling interest
—
7
2,192
( 84
)
Net income (loss) from discontinued operations attributable to stockholders of Advantage Solutions Inc.
$
12,181
$
5,171
$
57,007
$
( 6,522
)
Denominator:
Weighted average common shares - diluted
322,791,242
324,178,691
322,124,698
322,665,312
Diluted loss per common share from continuing operations
$
( 0.35
)
$
( 0.04
)
$
( 0.51
)
$
( 0.15
)
Diluted earnings (loss) per common share from discontinued operations
$
0.04
$
0.02
$
0.18
$
( 0.02
)
Diluted loss per common share from continuing operations attributable to stockholders of Advantage Solutions Inc.
$
( 0.35
)
$
( 0.04
)
$
( 0.51
)
$
( 0.15
)
Diluted earnings (loss) per common share from discontinued operations attributable to stockholders of Advantage Solutions Inc.
$
0.04
$
0.02
$
0.18
$
( 0.02
)
The Company had 18,578,321 warrants to purchase Class A common stock at $ 11.50 per share outstanding at June 30, 2024 and 2023, which have been excluded from the calculation of diluted earnings per common share, as the weighted average market price of the common stock during the three and six months ended June 30, 2024 and 2023 did not exceed the exercise price of the warrants.
In accordance with the treasury stock method the weighted average shares outstanding assuming dilution include the incremental effect of stock-based awards, except when such effect would be antidilutive. Stock-based awards of 15.6 million and 17.9 million weighted-average shares were outstanding for the three and six months ended June 30, 2024 , respectively, but were not included in the computation of diluted (loss) earnings per common share because the net loss position of the Company made them antidilutive. Stock-based awards of 1.2 million and 1.7 million weighted-average shares were outstanding for the three and six months ended June 30, 2023 , respectively, but were not included in the
23
computation of diluted loss per common share because the net loss position of the Company made them antidilutive. In addition, PSUs related to 6.0 million shares assuming achievement of the target level performance were outstanding for the six months ended June 30, 2024, but were not included in the computation of diluted loss per common share, as the performance targets were not yet met during the six months ended June 30, 2024. PSUs related to an immaterial number of shares assuming achievement of the target level performance were outstanding for the six months ended June 30, 2023, but were not included in the computation of diluted (loss) earnings per common share, as the performance targets were not yet met during the six months ended June 30, 2023.
12. Subsequent Events
On July 31, 2024, the Company entered into an arrangement to voluntarily repurchase $ 10.0 million of its Term Loan Facility for $ 9.7 million.
From July 1, 2024 through August 8, 2024, the Company executed open market purchases of $ 12.2 million our Class A common stock under the 2021 Share Repurchase Program.
24
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.