Advantage Solutions Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Forward-Looking Statements This Quarterly Report on Form 10-Q (this “Quarterly Report”), including the section titled “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (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. These statements are not guarantees of future performance and they involve certain risks, uncertainties and assumptions that are difficult to predict. We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecasted by our forward-looking statements. More information regarding these risks and uncertainties and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth in “Risk Factors” of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2024. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise. Executive Overview We are a leading business solutions provider to consumer goods manufacturers and retailers. We have a strong platform of essential, business critical services like headquarter sales, retail merchandising, in-store sampling, digital commerce, and shopper marketing. We generate demand for brands and retailers of all sizes, helping get the right products on the shelf — whether physical or digital — and into the hands of consumers in every way they shop. We use a scaled platform to innovate as a trusted partner with our clients, solving problems to increase their efficiency and effectiveness across a broad range of channels. Effective January 1, 2024, we revised our reportable segments to align our business strategy, and the manner in which the Chief Executive Officer, our chief operating decision maker, manages 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. We have reorganized our portfolio of businesses into a new, simplified structure that more closely aligns our business capabilities with economic buyers. As a result of this reorganization, we have formally disposed of certain business units. In addition to the business units already disposed of, there are certain other business units which are part of the overall reorganization plan that have not yet been disposed of or abandoned. We have determined that the business units disposed of met the discontinued operations accounting criteria 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 36.8% and 45.6% of our revenues in the nine months ended September 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. Brokerage services is primarily an outsourced sales and services agency for branded consumer goods manufacturers at retailer headquarters, in-store and online. Additionally, we lead with insights to execute branded merchandising strategies for branded consumer goods manufacturers related to merchandising in-store and online to drive product sales. Our omni-commerce marketing services primarily relate to digital and field marketing services, 26 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 36.3% and 29.3% of our revenues in the nine months ended September 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 27.0% and 25.1% of our revenues in the nine months ended September 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. Retailer merchandising services primarily relate to the execution of merchandising strategies, including traditional services such as interior store construction, store resets, category updates and new item implementation. Agency services primarily consist of providing marketing strategies within retail locations, including retail media networks, and analyzing shopper behavior to offer planning, execution and measurement of insight-based, retailer-specific promotions that target retailers' specific shopper base to drive product sales. Summary Our financial performance for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 includes: • Revenues decreased by $80.4 million, or 7.9%, to $939.3 million; • Operating income from continuing operations decreased by $9.9 million to an operating loss of $3.2 million; • Net loss from continuing operations increased by $7.7 million to $37.3 million; • Adjusted Net Income decreased by $1.1 million, or 4.4%, to $23.7 million; and • Adjusted EBITDA from Continuing Operations increased by $7.6 million or 8.1%, to $100.9 million. Our financial performance for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 includes: • Revenues decreased by $234.2 million, or 8.1%, to $2,674.0 million; • Operating income from continuing operations decreased by $150.3 million to an operating loss of $124.4 million; • Net loss from continuing operations increased by $122.0 million to $200.5 million; • Adjusted Net Income increased by $9.1 million, or 14.2%, to $54.9 million; and • Adjusted EBITDA from Continuing Operations decreased by $3.9 million, or 1.5%, to $261.5 million. Factors Affecting Our Business and Financial Reporting 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. Part of our strategy is to generate organic growth by expanding our existing client relationships, continuing to win new clients, pursuing channel expansion enhancing our service offerings, digital technology solutions, developing our international platform, delivering operational efficiencies and expanding into logical adjacencies. We believe that by pursuing these organic growth opportunities we will be able to continue to enhance our value proposition to our clients and thereby grow our business. 27 • Acquisitions and Divestitures. We have grown our business in part by acquiring businesses, both domestic and international. Many of our acquisition agreements include contingent consideration arrangements, which are described below. We have completed acquisitions at what we believe are attractive purchase prices and have regularly structured our agreements to result in the generation of long-lived tax assets, which have in turn reduced our effective purchase prices when incorporating the value of those tax assets. We continue to look for strategic acquisitions that can be completed at attractive purchase prices. We also continue to evaluate our service offerings to ensure more focus on our mission of converting shoppers into buyers for consumer goods companies and retailers. To that end, we have disposed of certain businesses. 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. • Contingent Consideration. Many of our acquisition agreements include contingent consideration arrangements, which are generally based on the achievement of financial performance thresholds by the operations attributable to the acquired businesses. The contingent consideration arrangements are based upon our valuations of the acquired businesses and are intended to share the investment risk with the sellers of such businesses if projected financial results are not achieved. The fair values of these contingent consideration arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. For each transaction, we estimate the fair value of contingent consideration payments as part of the initial purchase price. We review and assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could differ materially from our initial estimates. Adjustments to the estimated fair value related to changes in unobservable inputs are reported in “Selling, general, and administrative expenses” in our Condensed Consolidated Statements of Operations and Comprehensive Loss. • Depreciation and Amortization. As a result of the acquisition of our business by Karman Topco L.P. (“Topco”) on July 25, 2014 (the “2014 Topco Acquisition”), we acquired significant intangible assets, the value of which is amortized, on a straight-line basis, over 15 years from the date of the 2014 Topco Acquisition, unless determined to be indefinite-lived. The amortization of such intangible assets recorded in our consolidated financial statements has a significant impact on our operating income (loss) and net income (loss). Our historical acquisitions have increased, and future acquisitions likely will increase, our intangible assets. We do not believe the amortization expense associated with the intangible assets created from our purchase accounting adjustments reflect a material economic cost to our business. Unlike depreciation expense which has an economic cost reflected by the fact that we must re-invest in property and equipment to maintain the asset base delivering our results of operations, we do not have any capital re-investment requirements associated with the acquired intangible assets, such as client relationships and trade names, that comprise the majority of the finite-lived intangible assets that create our amortization expense. • Foreign Exchange Fluctuations. Our financial results are affected by fluctuations in the exchange rate between the U.S. dollar and other currencies, primarily the Canadian dollar due to our operations in such foreign jurisdictions. See also “ —Quantitative and Qualitative Disclosure of Market Risk—Foreign Currency Risk. ” • Seasonality. Our quarterly results are seasonal in nature, with the fourth fiscal quarter typically generating a higher proportion of our revenues than other fiscal quarters, as a result of higher consumer spending. We generally record slightly lower revenues in the first fiscal quarter of each year, as our clients begin to roll out new programs for the year, and consumer spending generally is less in the first fiscal quarter than other quarters. The timing of our clients’ marketing expenses, associated with marketing campaigns and new product launches, can also result in fluctuations from one quarter to another. How We Assess the Performance of Our Business Revenues Revenues related to the Branded Services segment are primarily recognized in the form of commissions, fee-for-service and cost-plus fees for providing headquarter relationship management, execution of merchandising strategies and omni-commerce marketing services. 28 Experiential Services segment revenues are primarily recognized in the form of fee-for-service and cost-plus fees for providing in-store, digital sampling and demonstrations, where the Company manages highly customized, large-scale sampling programs for leading brands and retailers. Retailer Services segment revenues are primarily recognized in the form of commissions, fee-for-service and cost-plus fees for providing consulting services related to private brand development, the execution of merchandising strategies and marketing strategies within retailer locations, including retail media networks and analyzing shopper behavior. We analyze our financial performance, in part, by measuring revenue growth in two ways—revenue growth attributable to organic activities and revenue growth and declines attributable to acquisitions and divestitures, which we refer to as organic revenues and acquired revenues, respectively. We define organic revenues as any revenues that are not acquired revenues. Our organic revenues exclude the impacts of acquisitions and divestitures, when applicable, which improves comparability of our results from period to period. In general, when we acquire a business, the acquisition includes a contingent consideration arrangement (e.g., an earn-out provision) and, accordingly, we separately track the financial performance of the acquired business. In such cases, we consider revenues generated by such a business during the 12 months following its acquisition to be acquired revenues. For example, if we completed an acquisition on July 1, 2023 for a business that included a contingent consideration arrangement, we would consider revenues from the acquired business from October 1, 2023 to September 30, 2024 to be acquired revenues. We generally consider growth attributable to the financial performance of an acquired business after the 12-month anniversary of the date of acquisition to be organic. If an acquisition of an acquired business does not include a contingent consideration arrangement, or we otherwise do not separately track the financial performance of the acquired business due to operational integration, we consider the revenues that the business generated in the 12 months prior to its acquisition to be our acquired revenues for the 12 months following its acquisition, and any differences in revenues actually generated during the 12 months after its acquisition to be organic. For example, if we completed an acquisition on October 1, 2023 for a business that did not include a contingent consideration arrangement, we would consider the amount of revenues from the acquired business from October 1, 2022 to September 30, 2023 to be acquired revenues during the period from October 1, 2023 to September 30, 2024, with any differences from that amount actually generated during the latter period to be organic revenues. All revenues generated by our acquired businesses are considered to be organic revenues after the 12-month anniversary of the date of acquisition. When we divest a business, unless otherwise presented as discontinued operations, we consider the revenues that the divested business generated in the 12 months prior to its divestiture to be subtracted from acquired revenues for the 12 months following its divestiture. For example, if we completed a divestiture on October 1, 2023 for a business, we would consider the amount of revenues from the divested business from October 1, 2022 to September 30, 2023 to be subtracted from acquired revenues during the period from October 1, 2023 to September 30, 2024. We measure organic revenue growth and acquired revenue growth by comparing the organic revenues or acquired revenues, respectively, period over period, net of any divestitures. Cost of Revenues Our cost of revenues consists of both fixed and variable expenses primarily attributable to the hiring, training, compensation and benefits provided to both full-time and part-time associates, as well as other project-related expenses. A number of costs associated with our associates are subject to external factors, including inflation, increases in market specific wages and minimum wage rates at federal, state and municipal levels and minimum pay levels for exempt roles. Additionally, when we enter into certain new client relationships, we may experience an initial increase in expenses associated with hiring, training and other items needed to launch the new relationship. 29 Selling, General, and Administrative Expenses Selling, general, and administrative expenses consist primarily of salaries, payroll taxes and benefits for corporate personnel. Other overhead costs include information technology, professional services fees, including accounting and legal services, and other general corporate expenses. We also incur expenses operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the 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, including our restructuring plan, 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 Goodwill represents the excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired in an acquisition. We test for impairment of goodwill at the reporting unit level. We generally combine components that have similar economic characteristics, nature of services, types of clients, distribution methods and regulatory environment. Changes to our operating segments effective January 1, 2024, as described in Note 8— Segments , resulted in a change to our reporting units (Branded Services, Branded Agencies, Experiential Services, Merchandising and Retailer Agencies). As a result, the Company performed the required impairment assessments directly before and immediately after the change in reporting units as of January 1, 2024. The assets and liabilities were reassigned to the applicable reporting units and allocated goodwill using the relative fair value approach. The estimated fair 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. The market approach applies market multiples derived from historical earnings data of selected guideline publicly traded companies that are first screened by industry group and then further narrowed on the reporting units' business descriptions, markets served, competitors, EBITDA margins and revenue size. The Company compared a weighted average of the output from the income and market approaches to compute the fair value of the reporting units. The assumptions in the income and market approach are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. We based our fair value estimates on assumptions we believe to be reasonable but which are unpredictable and inherently uncertain. A change in these underlying assumptions would cause a change in the results of the tests and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of goodwill in the future. Additionally, if actual results are not consistent with the estimates and assumptions or if there are significant changes to our planned strategy, it may cause fair value to be less than the carrying amounts and result in an impairment of goodwill in the future. In conjunction with the tests performed as of January 1, 2024, each of the fair values for the reporting units tested was in excess of its carrying amount. The fair values of the Branded Agencies and Experiential Services reporting units exceeded their respective carrying values by less than 20%. During the second quarter of fiscal year 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 nine months ended September 30, 2024, which has been reflected in “Impairment of goodwill” in the Condensed Consolidated Statements of Operations and Comprehensive Loss. Other (Income) Expenses Change in Fair Value of Warrant Liability Change in fair value of warrant liability represents a non-cash (income) expense resulting from a fair value adjustment to warrant liability with respect to the private placement warrants. Based on the availability of sufficient 30 observable information, we determine the fair value of the liability classified private placement warrants by approximating the value with the price of the public warrants at the respective period end, which is inherently less subjective and judgmental given it is based on observable inputs. Interest Expense Interest expense relates primarily to borrowings under our material debt agreements as described below. See “ — Liquidity and Capital Resources .” Depreciation and Amortization Amortization Expense As a result of the 2014 Topco Acquisition, we acquired significant intangible assets, the value of which is amortized, on a straight-line basis, over 15 years from the date of the 2014 Topco Acquisition, unless determined to be indefinite-lived. Included in our depreciation and amortization expense is amortization of acquired intangible assets. We have ascribed value to identifiable intangible assets other than goodwill in our purchase price allocations for companies we have acquired. These assets include, but are not limited to, client relationships and trade names. To the extent we ascribe value to identifiable intangible assets that have finite lives, we amortize those values over the estimated useful lives of the assets. Such amortization expense, although non-cash in the period expensed, directly impacts our results of 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 September 30, 2024 and 2023, respectively. Income Taxes Income tax expense and our effective tax rates can be affected by many factors, including state apportionment factors, our acquisition and divestiture strategy, tax incentives and credits available to us, changes in judgment regarding our ability to realize our deferred tax assets, changes in our worldwide mix of pre-tax losses or earnings, changes in existing tax laws and our assessment of uncertain tax positions. Cash Flows We have positive cash flow characteristics, as described below, due to the limited required capital investment in the fixed assets and working capital needs to operate our business in the normal course. See “ —Liquidity and Capital Resources. ” Our principal sources of liquidity are cash flows from operations, borrowings under the Revolving Credit Facility, divestitures and other debt. Our principal uses of cash are operating expenses, working capital requirements, investments in our technology platforms, acquisitions and repayment of debt. During the nine months ended September 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 September 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) 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 31 divestiture related expenses, (viii) restructuring expenses, (ix) reorganization expenses, (x) litigation expenses, (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 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) restructuring expenses, (xiii) reorganization expenses, (xiv) litigation expenses (recovery), (xv) costs associated with COVID-19, net of benefits received, (xvi) costs associated with (recovery from) the Take 5 Matter, (xvii) EBITDA for economic interests in investments and (xviii) 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) restructuring expenses, (ix) reorganization expenses, (x) litigation expenses (recovery), (xi) costs associated with COVID-19, net of benefits received, (xii) costs associated with (recovery from) the Take 5 Matter, (xiii) EBITDA for economic interests in investments and (xiv) 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 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. 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. 32 Transformation Strategy In July 2024, we announced a restructuring 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 restructuring 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. Reorganization expenses Beginning in the first quarter of 2023, the Company engaged third-party professional service consultants to assist in identifying and implementing operational efficiencies and cost-saving strategies. These efforts focused on internal process optimization and workforce alignment to the Company’s cost structure with current business needs. During the three and nine months ended September 30, 2024, the Company incurred $18.6 million and $74.0 million, respectively, in reorganization expenses related to various internal reorganization activities, including professional fees, lease exit costs, severance, and nonrecurring compensation costs, compared to $21.4 million and $38.3 million during three and nine months ended September 30, 2023. These amounts were recognized in "Selling, general, and administrative expenses" in the Condensed Consolidated Statements of Operations and Comprehensive Loss. The reorganization plan was designed to simplify the organization that supports the new segments after the divestitures and related transitions. Restructuring expenses In the third quarter of 2024, the Company implemented restructuring plans as a result of the overall reorganization. During the third quarter of fiscal year 2024, the Company offered a Voluntary Early Retirement Program (“VERP”) to certain eligible U.S.-based associates. During the three and nine months ended September 30, 2024, the Company recorded $21.4 million of settlement charges and special termination benefits in “Selling, general, and administrative expenses” in the Condensed Consolidated Statements of Operations and Comprehensive Loss. In connection with our reorganization initiatives, in September 2024, the Company announced a cost savings program to improve operational performance and align cost structures consistent with revenue levels associated with business changes, which includes employee termination benefits associated with a reduction-in-force (“2024 RIF”) and other optimization initiatives expected to be completed in Fiscal 2024. 33 Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023 The following table sets forth items derived from the Company’s consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023 in dollars and as a percentage of total revenues. Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (amounts in thousands) Revenues $ 939,270 100.0 % $ 1,019,706 100.0 % $ 2,674,039 100.0 % $ 2,908,177 100.0 % Cost of revenues 794,958 84.6 % 892,347 87.5 % 2,298,139 85.9 % 2,552,642 87.8 % Selling, general, and administrative expenses 98,438 10.5 % 68,291 6.7 % 250,377 9.4 % 172,172 5.9 % Impairment of goodwill and indefinite-lived assets — 0.0 % — 0.0 % 99,670 3.7 % — 0.0 % Depreciation and amortization 51,866 5.5 % 52,415 5.1 % 152,931 5.7 % 157,436 5.4 % Loss from equity method investments (2,815 ) (0.3 )% — 0.0 % (2,692 ) (0.1 )% — 0.0 % Total operating expenses 942,447 100.3 % 1,013,053 99.3 % 2,798,425 104.7 % 2,882,250 99.1 % Operating (loss) income from continuing operations (3,177 ) (0.3 )% 6,653 0.7 % (124,386 ) (4.7 )% 25,927 0.9 % Other expenses (income): Change in fair value of warrant liability 40 0.0 % 587 0.1 % (359 ) 0.0 % 587 0.0 % Interest expense, net 38,969 4.1 % 42,275 4.1 % 114,484 4.3 % 119,883 4.1 % Total other expenses 39,009 4.2 % 42,862 4.2 % 114,125 4.3 % 120,470 4.1 % Loss from continuing operations before income taxes (42,186 ) (4.5 )% (36,209 ) (3.6 )% (238,511 ) (8.9 )% (94,543 ) (3.3 )% Benefit from income taxes from continuing operations (4,866 ) (0.5 )% (6,577 ) (0.6 )% (38,042 ) (1.4 )% (15,994 ) (0.5 )% Net loss from continuing operations (37,320 ) (4.0 )% (29,632 ) (2.9 )% (200,469 ) (7.5 )% (78,549 ) (2.7 )% Net (loss) income from discontinued operations, net of tax (5,456 ) (0.6 )% 7,050 0.7 % 53,743 2.0 % 443 0.0 % Net loss (42,776 ) (4.6 )% (22,582 ) (2.2 )% (146,726 ) (5.5 )% (78,106 ) (2.7 )% Less: net (loss) from continuing operations attributable to noncontrolling interest, net of tax — 0.0 % 1,437 0.1 % — 0.0 % 2,346 0.1 % Less: net (loss) from discontinued operations attributable to noncontrolling interest, net of tax — 0.0 % 319 0.0 % 2,192 0.1 % 235 0.0 % Net loss attributable to stockholders of Advantage Solutions Inc. $ (42,776 ) (4.6 )% $ (24,338 ) (2.4 )% $ (148,918 ) (5.6 )% $ (80,687 ) (2.8 )% Other Financial Data Adjusted Net Income (1) $ 23,667 2.5 % $ 24,775 2.4 % $ 54,889 2.1 % $ 63,952 2.2 % Adjusted EBITDA from Continuing Operations (1) $ 100,920 10.7 % $ 93,317 9.2 % $ 261,459 9.8 % $ 265,423 9.1 % (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 September 30, 2024 and 2023 Revenues Three Months Ended September 30, Change (amounts in thousands) 2024 2023 $ % Branded Services $ 331,357 $ 451,173 $ (119,816 ) (26.6 )% Experiential Services 342,731 308,381 34,350 11.1 % Retailer Services 265,182 260,152 5,030 1.9 % Total revenues $ 939,270 $ 1,019,706 $ (80,436 ) (7.9 )% Total revenues decreased by $80.4 million, or 7.9%, during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. Excluding $104.8 million revenues from the deconsolidation of our European joint venture, revenues increased 2.4%. The Branded Services segment revenues decreased $119.8 million during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. Excluding $104.8 million revenues from the 34 deconsolidation of our European joint venture, the segment experienced a decrease of $15.0 million in revenues primarily due to an intentional client resignation and a weaker economic environment for our consumer packaged goods clients. The Experiential Services segment revenues increased $34.4 million during the three months ended September 30, 2024 as compared to the three months ended September 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 September 30, 2024 as compared to the three months ended September 30, 2023. Cost of Revenues Cost of revenues as a percentage of revenues for the three months ended September 30, 2024 was 84.6%, as compared to 87.5% for the three months ended September 30, 2023. The decrease as a percentage of revenues was largely attributable to the change in the revenue mix of our services primarily related to the deconsolidation of our European joint venture, one time litigation expense in the prior year with recovery in the current year and decreased incentive compensation expense. Selling, General, and Administrative Expenses Selling, general, and administrative expenses as a percentage of revenues for the three months ended September 30, 2024 was 10.5%, compared to 6.7% for the three months ended September 30, 2023. The increase as a percentage of revenues was primarily due to a $21.2 million increase in costs associated with our internal reorganization and restructuring activities, largely related to professional fees and severance and continued investment in our support services, including our technology solutions. Depreciation and Amortization Expense Depreciation and amortization expense was $51.9 million for the three months ended September 30, 2024 compared to $52.4 million for the three months ended September 30, 2023. Operating Income (Loss) from Continuing Operations Three Months Ended September 30, Change (amounts in thousands) 2024 2023 $ % Branded Services $ (12,210 ) $ (599 ) $ (11,611 ) Not Meaningful Experiential Services 587 1,971 (1,384 ) (70.2 )% Retailer Services 8,446 5,281 3,165 59.9 % Total operating (loss) income from continuing operations $ (3,177 ) $ 6,653 $ (9,830 ) (147.8 )% In the Branded Services segment, the decrease in operating income during the three months ended September 30, 2024 was primarily due to the decrease in revenue noted above combined with an increase in costs associated with our internal reorganization activities and continued investment in our support services, including our technology solutions. In the Experiential Services segment, the decrease in operating income during the three months ended September 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 and 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 September 30, 2024 was due to improved margins in our services, partially offset by an increase in costs associated with our internal reorganization activities and continued investment in our support services, including our technology solutions. 35 Change in Fair Value of Warrant Liability Change in fair value of warrant liability was an immaterial non-cash expense for the three months ended September 30, 2024 compared to $0.6 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 September 30, 2023. Interest Expense, net Interest expense, net decreased by $3.3 million, or 7.8%, to $39.0 million for the three months ended September 30, 2024, from $42.3 million for the three months ended September 30, 2023. The decrease in interest expense was primarily due to 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 Income Taxes Benefit from income taxes was $4.9 million for the three months ended September 30, 2024 as compared to $6.6 million of benefit from income taxes for the three months ended September 30, 2023. The fluctuation was primarily attributable to the application of a shortfall of $0.3 million of stock-based compensation for the three months ended September 30, 2024, as compared to a $1.0 million shortfall for stock-based compensation for the three months ended September 30, 2023 and $2.6 million of tax expense from return to provision adjustments during the three months ended September 30, 2024. Provision for income taxes from discontinued operations was $29.5 million for the three months ended September 30, 2024, while the income tax provision from discontinued operations was $2.3 million for the three months ended September 30, 2023. The income tax expense for the three months ended September 30, 2024 and 2023 was impacted primarily by the result of pre-tax income and divested entities. Net Loss from Continuing Operations Net loss from continuing operations was $37.3 million for the three months ended September 30, 2024, compared to net loss from continuing operations of $29.6 million for the three months ended September 30, 2023. The increase in net loss from continuing operations was primarily driven by a reduction in cost of sales as a percentage of revenue and a $3.3 million decrease in interest expense, partially offset by a $21.2 million increase in costs associated with our internal reorganization and restructuring activities, largely related to professional fees and severance and a $1.7 million decrease in the benefit from income taxes from continuing operations. Net Income (Loss) from Discontinued Operations Net loss from discontinued operations was $5.5 million for the three months ended September 30, 2024, compared to net income from discontinued operations of $7.1 million for the three months ended September 30, 2023. Adjusted Net Income Adjusted Net Income for the three months ended September 30, 2024 remained relatively unchanged from the three months ended September 30, 2023. 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 Three Months Ended September 30, Change (amounts in thousands) 2024 2023 $ % Branded Services $ 48,796 $ 50,710 $ (1,914 ) (3.8 )% Experiential Services 23,299 16,584 6,715 40.5 % Retailer Services 28,825 26,023 2,802 10.8 % Total Adjusted EBITDA from Continuing Operations $ 100,920 $ 93,317 $ 7,603 8.1 % 36 Adjusted EBITDA from Continuing Operations was $100.9 million for the three months ended September 30, 2024, compared to $93.3 million for the three months ended September 30, 2023. The increase in Adjusted EBITDA was primarily attributable to an increase in the Experiential Services segment. In the Branded Services segment, the decrease was primarily attributable to the decline in revenues offset by the decline in cost of revenues as described above. 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. In the Retailer Services segment, the increase was primarily attributable to increase in margins driven by price. For a reconciliation of Adjusted EBITDA from Continuing Operations to Net income, see “—Non-GAAP Financial Measures.” Comparison of the Nine Months Ended September 30, 2024 and 2023 Revenues Nine Months Ended September 30, Change (amounts in thousands) 2024 2023 $ % Branded Services $ 982,752 $ 1,327,135 $ (344,383 ) (25.9 )% Experiential Services 969,590 850,722 118,868 14.0 % Retailer Services 721,697 730,320 (8,623 ) (1.2 )% Total revenues $ 2,674,039 $ 2,908,177 $ (234,138 ) (8.1 )% Total revenues decreased by $234.2 million, or 8.1%, during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. Excluding revenues from the deconsolidation of our European joint venture, revenues increased 2.2%. The Branded Services segment revenues decreased by $344.4 million during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. Excluding $298.8 million revenues from the deconsolidation of our European joint venture, the segment experienced a decrease of $45.6 million in revenues primarily due to an intentional client resignation and a weaker economic environment for our consumer package goods clients. The Experiential Services segment revenues increased by $118.9 million during the nine months ended September 30, 2024 as compared to the nine months ended September 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 nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. Cost of Revenues Cost of revenues as a percentage of revenues for the nine months ended September 30, 2024 was 85.9%, as compared to 87.8% for the nine months ended September 30, 2023. The decrease as a percentage of revenues was largely attributable to the change in the revenue mix of our services primarily the related to the deconsolidation of our European joint venture, one time litigation expense in the prior year with recovery in the current year and decreased incentive compensation expense. Selling, General, and Administrative Expenses Selling, general, and administrative expenses as a percentage of revenues for the nine months ended September 30, 2024 was 9.4%, compared to 5.9% for the nine months ended September 30, 2023. The increase as a percentage of revenues was primarily due to a $57.4 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 37 We recognized a $99.7 million non-cash goodwill impairment charge during the nine months ended September 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 $152.9 million for the nine months ended September 30, 2024 compared to $157.4 million for the nine months ended September 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 Nine Months Ended September 30, Change (amounts in thousands) 2024 2023 $ % Branded Services $ (141,608 ) $ 11,607 $ (153,215 ) Not Meaningful Experiential Services 3,398 2,450 948 38.7 % Retailer Services 13,824 11,870 1,954 16.5 % Total operating (loss) income from continuing operations $ (124,386 ) $ 25,927 $ (150,313 ) (579.8 )% In the Branded Services segment, the decrease in operating income during the nine months ended September 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 nine months ended September 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 increase in operating income during the nine months ended September 30, 2024 was due to improved margins in our services partially offset by an increase in costs associated with our internal reorganization activities and 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 $0.4 million of non-cash gain for the nine months ended September 30, 2024, whereas the nine months ended September 30, 2023 had a non-cash loss of $0.6 million. Interest Expense, net Interest expense, net decreased by $5.4 million, or 4.5%, to $114.5million for the nine months ended September 30, 2024, from $119.9 million for the nine months ended September 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 nine months ended September 30, 2024. Benefit from Income Taxes Benefit from income taxes was $38.0 million for the nine months ended September 30, 2024 as compared to $16.0 million of benefit from income taxes for the nine months ended September 30, 2023. The fluctuation was primarily attributable to a larger pre-tax loss during the nine months ended September 30, 2024 compared to a smaller pre-tax loss during the nine months ended September 30, 2023 and $2.6 million of tax expense from return to provision adjustments during the nine months ended September 30, 2024. Also contributing to the variance was the application of the windfall of $0.8 million of stock-based compensation for the nine months ended September 30, 2024, as compared to a $4.1 38 million shortfall for stock-based compensation for the nine months ended September 30, 2023 and the release of the valuation allowance of $1.1 million that was determined not to be necessary for the nine months ended September 30, 2024. Provision for income taxes from discontinued operations was $41.4 million for the nine months ended September 30, 2024, while the income tax provision from discontinued operations was $3.6 million for the nine months ended September 30, 2023. The income tax expense for the nine months ended September 30, 2024 and 2023 was impacted primarily by the result of pre-tax income and divested entities. Net Loss from Continuing Operations Net loss from continuing operations was $200.5 million for the nine months ended September 30, 2024, compared to net loss from continuing operations of $78.5 million for the nine months ended September 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 $53.7 million for the nine months ended September 30, 2024, compared to net loss from discontinued operations of $0.4 million for the nine months ended September 30, 2023. The increase in net income from discontinued operations was primarily driven by the $95.3 million gain on divestitures for the nine months ended September 30, 2024. Adjusted Net Income The decrease in Adjusted Net Income for the nine months ended September 30, 2024 was primarily attributable to increases 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 Nine Months Ended September 30, Change (amounts in thousands) 2024 2023 $ % Branded Services $ 125,987 $ 154,298 $ (28,311 ) (18.3 )% Experiential Services 62,603 39,792 22,811 57.3 % Retailer Services 72,869 71,333 1,536 2.2 % Total Adjusted EBITDA from Continuing Operations $ 261,459 $ 265,423 $ (3,964 ) (1.5 )% Adjusted EBITDA from Continuing Operations decreased by $3.9 million, or 1.5%, to $261.5 million for the nine months ended September 30, 2024, from $265.4 million for the nine months ended September 30, 2023. In the Branded Services segment, the decrease was primarily attributable to the decline in revenues as described above. 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. In the Retailer Services segment, Adjusted EBITDA was relatively unchanged. 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.” 39 Non-GAAP Financial Measures Adjusted Net Income is a non-GAAP financial measure. 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) restructuring expenses, (ix) reorganization expenses, (x) litigation expenses, (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 income, our most directly comparable measure presented on a GAAP basis. Adjusted Net Income A reconciliation of Adjusted Net Income to Net loss is provided in the following table: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Net loss $ (37,320 ) $ (29,632 ) $ (200,469 ) $ (78,549 ) Less: net income attributable to noncontrolling interests — 1,437 — 2,346 Add: Impairment of goodwill and indefinite-lived assets — — 99,670 — Equity-based compensation of Karman Topco L.P. (a) (178 ) 209 (658 ) (3,278 ) Changes in fair value of warrant liability 40 587 (359 ) 587 Fair value adjustments related to contingent consideration related to acquisitions (b) — 1,518 1,678 10,487 Acquisition and divestiture related expenses (c) 127 332 (1,207 ) 3,064 Restructuring expenses (d) 24,118 — 24,118 — Reorganization expenses (e) 18,637 21,372 73,980 38,304 Litigation expenses (recovery) (f) (1,713 ) 4,314 (2,422 ) 8,664 Amortization of intangible assets (g) 44,529 46,851 132,988 140,861 Costs associated with COVID-19, net of benefits received (h) — (49 ) — 3,285 Gain on repurchases of Term Loan Facility and Senior Secured Notes debt (i) (4,038 ) (272 ) (7,091 ) (5,241 ) Costs associated with the Take 5 Matter, net of (recoveries) (j) 385 53 1,081 (1,443 ) Tax adjustments related to non-GAAP adjustments (k) (20,920 ) (19,071 ) (66,420 ) (50,443 ) Adjusted Net Income $ 23,667 $ 24,775 $ 54,889 $ 63,952 40 __________________ (a) Represents expenses related to (i) equity-based compensation expense associated with grants of Common Series D Units of Topco made to one of the Advantage Sponsors and (ii) equity-based compensation expense associated with the Common Series C Units of Topco. (b) Represents adjustments to the estimated fair value of our contingent consideration liabilities related to our acquisitions, for the applicable periods. (c) Represents fees and costs associated with activities related to our acquisitions, divestitures, and related reorganization activities, including professional fees, due diligence, and integration activities. (d) Restructuring charges including programs 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. Restructuring expenses include costs associated with the Voluntary Early Retirement Program (“VERP”) and employee termination benefits associated with a reduction-in-force ("2024 RIF") and other optimization initiatives. (e) Represents fees and costs associated with various internal reorganization activities, including professional fees, lease exit costs, severance, and nonrecurring compensation costs. (f) Represents legal settlements, reserves, and expenses that are unusual or infrequent costs associated with our operating activities. (g) Represents the amortization of intangible assets recorded in connection with the 2014 Topco Acquisition and our other acquisitions. (h) 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. (i) 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 three and nine months ended September 30, 2024 and 2023. (j) 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. (k) 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 Adjusted EBITDA 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 mean 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) restructuring expenses, (xiii) reorganization expenses, (xiv) litigation expenses (recovery), (xv) costs associated with COVID-19, net of benefits received, (xvi) costs associated with (recovery from) the Take 5 Matter, (xvii) EBITDA for economic interests in investments and (xviii) 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) restructuring expenses, (ix) reorganization expenses, (x) litigation expenses (recovery), (xi) costs associated with COVID-19, net of benefits received, (xii) costs associated with (recovery from) the Take 5 Matter, (xiii) EBITDA for economic interests in investments and (xiv) other adjustments that management believes are helpful in evaluating our operating performance, in each case, attributable to such segment. Unallocated shared costs associated with discontinued operations from certain shared administrative functions, through the close of the discontinued operations; excluded from income from discontinued operations as they are not a direct cost of the discontinued business but a result of indirect allocations, including but not limited to, information technology, human resources, finance and accounting, supply chain, and commercial operations. Subsequent to the close of the divestitures, amounts attributable to unallocated shared costs would be mitigated through income from 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 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 41 business, such as certain noncash items, unusual or infrequent items or items that change from period to period without any material relevance to our operating performance. We evaluate these measures in conjunction with our results according to GAAP because we believe they provide a more complete understanding of factors and trends affecting our business than GAAP measures alone. Furthermore, the agreements governing our indebtedness contain covenants and other tests based on measures substantially similar to Adjusted EBITDA 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 our Net income, our most directly comparable measure presented on a GAAP basis. Non-GAAP financial measures are subject to inherent limitations as they reflect the exercise of judgments by management about which expense and income are excluded or included in determining these non-GAAP financial measures. Additionally, other companies may calculate non-GAAP measures differently, or may use other measures to calculate their financial performance, and therefore our non-GAAP measures may not be directly comparable to similarly titled measures of other companies. Reconciliations of Adjusted EBITDA from Continuing Operations to Net loss from continuing operations is provided in the following table: Continuing Operations Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Net loss from continuing operations $ (37,320 ) $ (29,632 ) $ (200,469 ) $ (78,549 ) Add: Interest expense, net 38,969 42,275 114,484 119,883 Benefit from income taxes from continuing operations (4,866 ) (6,577 ) (38,042 ) (15,994 ) Depreciation and amortization 51,866 52,415 152,931 157,436 Impairment of goodwill and indefinite-lived assets — — 99,670 — Changes in fair value of warrant liability 40 587 (359 ) 587 Stock-based compensation expense (a) 8,143 8,983 24,225 29,400 Equity-based compensation of Karman Topco L.P. (b) (178 ) 209 (658 ) (3,278 ) Fair value adjustments related to contingent consideration related to acquisitions (c) — 1,518 1,678 10,487 Acquisition and divestiture related expenses (d) 127 332 (1,207 ) 3,064 Restructuring expenses (e) 24,118 — 24,118 — Reorganization expenses (f) 18,637 21,372 73,980 38,304 Litigation (recovery) expenses (g) (1,713 ) 4,314 (2,422 ) 8,664 Costs associated with COVID-19, net of benefits received (h) — (49 ) — 3,285 Costs associated with the Take 5 Matter, net of (recoveries) (i) 385 53 1,081 (1,443 ) EBITDA for economic interests in investments (j) 2,712 (2,483 ) 12,449 (6,423 ) Adjusted EBITDA from Continuing Operations $ 100,920 $ 93,317 $ 261,459 $ 265,423 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 September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Net (loss) income from discontinued operations, net of tax $ (5,456 ) $ 7,050 $ 53,743 $ 443 Add: Interest expense, net — 26 48 69 Provision for income taxes from discontinued operations 29,511 2,254 41,371 3,559 Depreciation and amortization 204 4,050 4,695 12,871 (Gain) loss on divestitures (k) (25,065 ) 2,553 (95,261 ) 20,208 Stock-based compensation expense (a) (1,576 ) 1,091 (2,808 ) 3,109 Fair value adjustments related to contingent consideration related to acquisitions (c) — 713 1,883 1,104 Acquisition and divestiture related expenses (d) 2,434 1,259 5,537 1,456 Reorganization expenses (f) 2,250 1,044 9,535 1,099 EBITDA for economic interests in investments (j) — (208 ) (384 ) 89 Adjusted EBITDA from Discontinued Operations $ 2,302 $ 19,832 $ 18,359 $ 44,007 42 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 September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Operating (loss) income $ (12,210 ) $ (599 ) $ (141,608 ) $ 11,607 Add: Depreciation and amortization 33,087 35,369 97,401 106,550 Impairment of goodwill — — 99,670 — Stock-based compensation expense (a) 1,829 3,689 8,552 11,309 Equity-based compensation of Karman Topco L.P. (b) 402 275 924 (1,209 ) Fair value adjustments related to contingent consideration related to acquisitions (c) — 1,518 1,678 10,471 Acquisition and divestiture related expenses (d) 49 159 153 1,484 Restructuring expenses (e) 15,392 — 15,392 — Reorganization expenses (f) 6,959 10,730 29,863 20,280 Litigation expenses (g) 191 1,994 432 1,994 Costs associated with COVID-19, net of benefits received (h) — 6 — (326 ) Costs associated with the Take 5 Matter, net of (recoveries) (i) 385 53 1,081 (1,443 ) EBITDA for economic interests in investments (j) 2,712 (2,484 ) 12,449 (6,419 ) Branded Services segment Adjusted EBITDA $ 48,796 $ 50,710 $ 125,987 $ 154,298 Experiential Services segment Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Operating income $ 587 $ 1,971 $ 3,398 $ 2,450 Add: Depreciation and amortization 10,289 9,221 31,224 27,286 Stock-based compensation expense (a) 3,371 (778 ) 7,469 (1,860 ) Equity-based compensation of Karman Topco L.P. (b) (281 ) (29 ) (783 ) (934 ) Fair value adjustments related to contingent consideration related to acquisitions (c) — — — 7 Acquisition and divestiture related expenses (d) 32 19 37 441 Restructuring expenses (e) 3,430 — 3,430 — Reorganization expenses (f) 5,670 4,960 17,394 8,230 Litigation expenses (g) 201 1,276 434 1,276 Costs associated with COVID-19, net of benefits received (h) — (56 ) — 2,896 Experiential Services segment Adjusted EBITDA $ 23,299 $ 16,584 $ 62,603 $ 39,792 43 Retailer Services segment Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2024 2023 2024 2023 Operating income $ 8,446 $ 5,281 $ 13,824 $ 11,870 Add: Depreciation and amortization 8,490 7,825 24,306 23,600 Stock-based compensation expense (a) 2,943 6,072 8,204 19,951 Equity-based compensation of Karman Topco L.P. (b) (299 ) (37 ) (799 ) (1,135 ) Fair value adjustments related to contingent consideration related to acquisitions (c) — — — 9 Acquisition and divestiture related expenses (d) 46 154 (1,397 ) 1,139 Restructuring expenses (e) 5,296 — 5,296 — Reorganization expenses (f) 6,008 5,682 26,723 9,794 Litigation (recovery) expenses (g) (2,105 ) 1,044 (3,288 ) 5,394 Costs associated with COVID-19, net of benefits received (h) — 1 — 715 EBITDA for economic interests in investments (j) — 1 — (4 ) Retailer Services segment Adjusted EBITDA $ 28,825 $ 26,023 $ 72,869 $ 71,333 (a) 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. (b) 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. (c) Represents adjustments to the estimated fair value of our contingent consideration liabilities related to our acquisitions, for the applicable periods. (d) Represents fees and costs associated with activities related to our acquisitions, divestitures, and related reorganization activities, including professional fees, due diligence, and integration activities. (e) Restructuring charges including programs 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. Restructuring expenses include costs associated with the Voluntary Early Retirement Program (“VERP”) and employee termination benefits associated with a reduction-in-force ("2024 RIF") and other optimization initiatives. (f) Represents fees and costs associated with various internal reorganization activities, including professional fees, lease exit costs, severance, and nonrecurring compensation costs. (g) Represents legal settlements, reserves, and expenses that are unusual or infrequent costs associated with our operating activities. (h) 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. (i) 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. (j) 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. (k) Represents gains and losses on disposal of assets related to divestitures and losses on sale of businesses and assets held for sale, less cost to sell. 44 Liquidity and Capital Resources Our principal sources of liquidity are cash flows from operations, borrowings under the Revolving Credit Facility, and other debt. Our principal uses of cash are operating expenses, working capital requirements, acquisitions, interest on debt and repayment of debt. Principal uses of cash used in investing activities includes our enterprise resource planning initiative, which includes upgrading our information system platform. Cash Flows A summary of our cash operating, investing and financing activities from continuing operations are shown in the following table: Nine Months Ended September 30, (in thousands) 2024 2023 Net cash provided by operating activities from continuing operations $ 78,009 $ 172,576 Net cash provided by (used in) investing activities from continuing operations 211,427 (10,256 ) Net cash used in financing activities from continuing operations (207,122 ) (115,170 ) Net effect of foreign currency changes on cash from continuing operations (1,405 ) 655 Net change in cash, cash equivalents and restricted cash $ 80,909 $ 47,805 Net Cash Provided by Operating Activities Net cash provided by operating activities from continuing operations during the nine months ended September 30, 2024 consisted of net loss of $200.5 million adjusted for certain non-cash items, including impairment of goodwill of $99.7 million, gain on repurchases of Senior Secured Notes and Term Loan Facility, net of cost of extinguishments, of $9.1 million, depreciation and amortization of $152.9 million, stock-based compensation of $24.2 million and effects of changes in working capital. Net cash provided by operating activities from continuing operations during the nine months ended September 30, 2023 consisted of net loss of $78.5 million adjusted for certain non-cash items, including depreciation and amortization of $157.4 million, stock-based compensation of $29.4 million and effects of changes in working capital. The decrease in cash provided by operating activities from continuing operations during the nine months ended September 30, 2024 relative to the same period in 2023 was primarily due to an increase in one-time transformation costs during the nine months ended September 30, 2024. Net Cash Provided by (Used in) Investing Activities Net cash provided by investing activities from continuing operations during the nine months ended September 30, 2024 primarily consisted of the proceeds from divestitures of $275.7 million, partially offset by the purchase of property and equipment of $50.4 million, primarily related to our ERP initiative, which includes upgrading our information system platform, and the purchase of investments in unconsolidated affiliates of $13.9 million. Net cash used in investing activities during the nine months ended September 30, 2023 primarily consisted of the purchase of property and equipment of $24.4 million and proceeds from divestitures of $12.8 million. Net Cash Used in Financing Activities Cash flows used in financing activities from continuing operations during the nine months ended September 30, 2024 were primarily related to repurchases of Senior Secured Notes and Term Loan Facility of $147.1 million, repayment of principal on our Term Loan Facility of $9.9 million\, payments for taxes related to net share settlement of $11.7 million, payments of contingent consideration of $5.7 million and payments related to the share repurchase program of $34.1 million. Cash flows used in financing activities during the nine months ended September 30, 2023 were primarily related to repurchases of the Term Loan Facility of $104.0 million, repayment of principal on our Term Loan Facility of $10.2 million, payments of contingent consideration and holdback payments of $1.9 million, payments for taxes related to net share settlement of $1.3 million, partially offset by $2.2 million related to proceeds from the issuance of Class A common stock. 45 Description of Credit Facilities Senior Secured Credit Facilities Advantage Sales & Marketing Inc. (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 Our Revolving Credit Facility provides for revolving loans and letters of credit in an aggregate amount of up to $500.0 million, subject to borrowing base capacity. Letters of credit are limited to the lesser of (a) $150.0 million and (b) the aggregate unused amount of commitments under our Revolving Credit Facility then in effect. Loans under the Revolving Credit Facility may be denominated in either U.S. dollars or Canadian dollars. Bank of America, N.A., is administrative agent and ABL Collateral Agent. The Revolving Credit Facility is scheduled to mature in December 2027. We may use borrowings under the Revolving Credit Facility to fund working capital and for other general corporate purposes, including permitted acquisitions and other investments. As of September 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. Borrowings will bear interest at a floating rate, which can be either an adjusted Term SOFR or Alternative Currency Spread rate plus an applicable margin or, at the Borrower’s option, a base rate or Canadian Prime Rate plus an applicable margin. The applicable margins for the Revolving Credit Facility are 1.75%, 2.00% or 2.25%, with respect to Term SOFR or Alternative Currency Spread rate borrowings and 0.75%, 1.00%, or 1.25%, with respect to base rate or Canadian Prime Rate borrowings, in each case depending on average excess availability under the Revolving Credit Facility. The Borrower’s ability to draw under the Revolving Credit Facility or issue letters of credit thereunder will be conditioned upon, among other things, the Borrower’s delivery of prior written notice of a borrowing or issuance, as applicable, the Borrower’s ability to reaffirm the representations and warranties contained in the credit agreement governing the Revolving Credit Facility and the absence of any default or event of default thereunder. The Borrower’s obligations under the Revolving Credit Facility are guaranteed by Karman Intermediate Corp. (“Holdings”) and all of the Borrower’s direct and indirect wholly owned material U.S. subsidiaries (subject to certain permitted exceptions) and Canadian subsidiaries (subject to certain permitted exceptions, including exceptions based on immateriality thresholds of aggregate assets and revenues of Canadian subsidiaries) (the “Guarantors”). The Revolving Credit Facility is secured by a lien on substantially all of Holdings’, the Borrower’s and the Guarantors’ assets (subject to certain permitted exceptions). The Borrower’s Revolving Credit Facility has a first-priority lien on the current asset collateral and a second-priority lien on security interests in the fixed asset collateral (second in priority to the liens securing the Notes and the Term Loan Facility discussed below), in each case, subject to other permitted liens. The Revolving Credit Facility has the following fees: (i) an unused line fee of 0.375% or 0.250% per annum of the unused portion of the Revolving Credit Facility, depending on average excess availability under the Revolving Credit Facility; (ii) a letter of credit participation fee on the aggregate stated amount of each letter of credit equal to the applicable margin for adjusted Eurodollar rate loans, as applicable; and (iii) certain other customary fees and expenses of the lenders and agents thereunder. The Revolving Credit Facility contains customary covenants, including, but not limited to, restrictions on the Borrower’s ability and that of our subsidiaries to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make acquisitions, loans, advances or investments, pay dividends, sell or otherwise transfer assets, optionally prepay or modify terms of any junior indebtedness, enter into transactions with affiliates or change our line of business. The Revolving Credit Facility will require the maintenance of a fixed charge coverage ratio (as set forth in the credit agreement governing the Revolving Credit Facility) of 1.00 to 1.00 at the end of each fiscal quarter when excess availability is less than the greater of $25.0 million and 10% of the lesser of the borrowing base and 46 maximum borrowing capacity. Such fixed charge coverage ratio will be tested at the end of each quarter until such time as excess availability exceeds the level set forth above. The Revolving Credit Facility provides that, upon the occurrence of certain events of default, the Borrower’s obligations thereunder may be accelerated and the lending commitments terminated. Such events of default include payment defaults to the lenders thereunder, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy, insolvency, corporate arrangement, winding-up, liquidation or similar proceedings, material money judgments, material pension-plan events, certain change of control events and other customary events of default. 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 September 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%. The Borrower may voluntarily prepay loans or reduce commitments under the Term Loan Facility, in whole or in part, subject to minimum amounts, with prior notice but without premium or penalty. The Company voluntarily repurchased an aggregate of $29.8 million principal amount of its Term Loan Facility during the nine months ended September 30, 2024. The Company recognized a gain on the repurchases of $0.5 million for the nine months ended September 30, 2024 as a component of “Interest expense, net” in the Condensed Consolidated Statements of Operations and Comprehensive Loss. The Borrower will be required to prepay the Term Loan Facility with 100% of the net cash proceeds of certain asset sales (such percentage subject to reduction based on the achievement of specific first lien net leverage ratios) and subject to certain reinvestment rights, 100% of the net cash proceeds of certain debt issuances and 50% of excess cash flow (such percentage subject to reduction based on the achievement of specific first lien net leverage ratios). The Borrower’s obligations under the Term Loan Facility are guaranteed by Holdings and the Guarantors. Our Term Loan Facility is secured by a lien on substantially all of Holdings’, the Borrower’s and the Guarantors’ assets (subject to certain permitted exceptions). The Term Loan Facility has a first-priority lien on the fixed asset collateral (equal in priority with the liens securing the Notes) and a second-priority lien on security interests in the current asset collateral (second in priority to the liens securing the Revolving Credit Facility), in each case, subject to other permitted liens. The Term Loan Facility contains certain customary negative covenants, including, but not limited to, restrictions on the Borrower’s ability and that of our restricted subsidiaries to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, pay dividends or make other restricted payments, sell or otherwise transfer assets or enter into transactions with affiliates. The Term Loan Facility provides that, upon the occurrence of certain events of default, the Borrower’s obligations thereunder may be accelerated. Such events of default will include payment defaults to the lenders thereunder, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy, insolvency, corporate arrangement, winding-up, liquidation or similar proceedings, material money judgments, change of control and other customary events of default. Senior Secured Notes On October 28, 2020, Advantage Solutions FinCo LLC (“Finco”) issued $775.0 million aggregate principal amount of 6.50% Senior Secured Notes due 2028 (the “Notes”). Immediately following such issuance, Finco merged with and into Advantage Sales & Marketing Inc. (in its capacity as the issuer of the Notes, the “Issuer”), with the Issuer continuing as the surviving entity and assuming the obligations of Finco. The Notes were sold to BofA Securities, Inc., Deutsche Bank Securities Inc., Morgan Stanley & Co. LLC and Apollo Global Securities, LLC. The Notes were resold to certain non-U.S. persons pursuant to Regulation S under the Securities Act of 1933, as amended (the “Securities 47 Act”), and to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act at a purchase price equal to 100% of their principal amount. The terms of the Notes are governed by an Indenture, dated as of October 28, 2020 (the “Indenture”), among Finco, the Issuer, the guarantors named therein (the “Notes Guarantors”) and Wilmington Trust, National Association, as trustee and collateral agent. The Borrower may voluntarily prepay loans or reduce commitments under the Senior Secured Notes, in whole or in part, subject to minimum amounts, with prior notice but without premium or penalty. The Company voluntarily repurchased an aggregate of $127.9 million principal amount of its Senior Secured Notes during the nine months ended September 30, 2024. The Company recognized a gain on the repurchase of $8.6 million for the nine months ended September 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 nine months ended September 30, 2023. Interest and maturity Interest on the Notes is payable semi-annually in arrears on May 15 and November 15 at a rate of 6.50% per annum. The Notes will mature on November 15, 2028. Guarantees The Notes are guaranteed by Holdings and each of the Issuer’s direct and indirect wholly owned material U.S. subsidiaries (subject to certain permitted exceptions) and Canadian subsidiaries (subject to certain permitted exceptions, including exceptions based on immateriality thresholds of aggregate assets and revenues of Canadian subsidiaries) that is a borrower or guarantor under the Term Loan Facility. Security and Ranking The Notes and the related guarantees are the general, senior secured obligations of the Issuer and the Notes Guarantors, are secured on a first-priority pari passu basis by security interests on the fixed asset collateral (equal in priority with liens securing the Term Loan Facility), and are secured on a second-priority basis by security interests on the current asset collateral (second in priority to the liens securing the Revolving Credit Facility and equal in priority with liens securing the Term Loan Facility), in each case, subject to certain limitations and exceptions and permitted liens. The Notes and related guarantees rank (i) equally in right of payment with all of the Issuer’s and the Guarantors’ senior indebtedness, without giving effect to collateral arrangements (including the Senior Secured Credit Facilities) and effectively equal to all of the Issuer’s and the Guarantors’ senior indebtedness secured on the same priority basis as the Notes, including the Term Loan Facility, (ii) effectively subordinated to any of the Issuer’s and the Guarantors’ indebtedness that is secured by assets that do not constitute collateral for the Notes to the extent of the value of the assets securing such indebtedness and to indebtedness that is secured by a senior-priority lien, including the Revolving Credit Facility to the extent of the value of the current asset collateral and (iii) structurally subordinated to the liabilities of the Issuer’s non-Guarantor subsidiaries. Optional redemption for the Notes The Notes are redeemable at the applicable redemption prices specified in the Indenture plus accrued and unpaid interest. If the Issuer or its restricted subsidiaries sell certain of their respective assets or experience specific kinds of changes of control, subject to certain exceptions, the Issuer must offer to purchase the Notes at par. In connection with any offer to purchase all Notes, if holders of no less than 90% of the aggregate principal amount of Notes validly tender their Notes, the Issuer is entitled to redeem any remaining Notes at the price offered to each holder. The Issuer may voluntarily prepay loans or reduce commitments under the Notes, in whole or in part without premium or penalty. Restrictive covenants The Notes are subject to covenants that, among other things limit the Issuer’s ability and its restricted subsidiaries’ ability to: incur additional indebtedness or guarantee indebtedness; pay dividends or make other distributions in respect 48 of, or repurchase or redeem, the Issuer’s or a parent entity’s capital stock; prepay, redeem or repurchase certain indebtedness; issue certain preferred stock or similar equity securities; make loans and investments; sell or otherwise dispose of assets; incur liens; enter into transactions with affiliates; enter into agreements restricting the Issuer’s subsidiaries’ ability to pay dividends; and consolidate, merge or sell all or substantially all of the Issuer’s assets. Most of these covenants will be suspended on the Notes so long as they have investment grade ratings from both Moody’s Investors Service, Inc. and S&P Global Ratings and so long as no default or event of default under the Indenture has occurred and is continuing. Events of default The following constitute events of default under the Notes, among others: default in the payment of interest; default in the payment of principal; failure to comply with covenants; failure to pay other indebtedness after final maturity or acceleration of other indebtedness exceeding a specified amount; certain events of bankruptcy; failure to pay a judgment for payment of money exceeding a specified aggregate amount; voidance of subsidiary guarantees; failure of any material provision of any security document or intercreditor agreement to be in full force and effect; and lack of perfection of liens on a material portion of the collateral, in each case subject to applicable grace periods. Future Cash Requirement There were no material changes to our contractual future cash requirements from those disclosed in our 2023 Annual Report. Cash and Cash Equivalents Held Outside the United States As of September 30, 2024, and December 31, 2023, $64.7 million and $43.8 million, respectively, of our cash and cash equivalents were held by foreign subsidiaries. As of September 30, 2024, and December 31, 2023, $23.7 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 September 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. We have continued to assert indefinite reinvestment on all other earnings as it is necessary for continuing operations and to grow the business. If at a point in the future our assertion changes, we will evaluate tax-efficient means to repatriate the income. In addition, we expect existing domestic cash and cash flows from operations to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as debt repayment and capital expenditures, for at least the next 12 months and thereafter for the foreseeable future. If we should require more capital in the United States than is generated by our domestic operations, for example, to fund significant discretionary activities such as business acquisitions or to settle debt, we could elect to repatriate future earnings from foreign jurisdictions. These alternatives could result in higher income tax expense or increased interest expense. We consider the majority of the undistributed earnings of our foreign subsidiaries, as of September 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 We do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity. We do not have any majority-owned subsidiaries that are not included in our consolidated financial statements. Additionally, we do not have an interest in, or relationships with, any special-purpose entities. Critical Accounting Policies and Estimates Our critical accounting policies and estimates are included in our 2023 Annual Report and did not materially change during the nine months ended September 30, 2024 except as included below. 49 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. 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, 2024. 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 second quarter of fiscal year 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 second quarter of fiscal year 2024, which has been reflected in “Impairment of goodwill” in the Condensed Consolidated Statements of Operations and Comprehensive Loss. 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 Accounting Standards Recently Issued but Not Yet Adopted by the Company In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires entities to expand their existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid. The standard is effective for us beginning in fiscal year 2025, with early adoption permitted. The new standard is expected to 50 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 CODM. The standard is effective for us beginning in fiscal year 2024 and interim periods within fiscal year 2025. We are currently evaluating the impact of ASU 2023-07 on the consolidated financial statements and related disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. The standard is effective for the Company beginning in fiscal year 2026 and interim periods within fiscal year 2027, 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 2024-03 on the consolidated financial statements and related disclosures. 51