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 for the year ended December 31, 2024 (the “2024 Annual Report”). 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 (the “SEC”), 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. Through our Branded Services segment, which generated approximately 35.3% and 38.2% of our revenues in the three months ended March 31, 2025 and 2024, 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, 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 38.2% and 35.7% of our revenues in the three months ended March 31, 2025 and 2024, 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 26.5% and 26.1% of our revenues in the three months ended March 31, 2025 and 2024, 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 20 strategies, including traditional services such as interior store construction, store resets, category updates and new item implementation. Agency services primarily consist of providing marketing strategies within retail locations, including retail media networks, and analyzing shopper behavior to offer planning, execution and measurement of insight-based, retailer-specific promotions that target retailers' specific shopper base to drive product sales. Summary Our financial performance for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 includes: • Revenues decreased by $39.6 million, or 4.6%, to $821.8 million; • Operating loss from continuing operations decreased by $15.3 million to $14.6 million; • Net loss from continuing operations increased by $6.0 million to $56.1 million; • Adjusted Net Income decreased by $25.3 million, or 274.5%, to $16.1 million; and • Adjusted EBITDA from Continuing Operations decreased by $12.5 million or 17.6%, to $58.2 million. Factors Affecting Our Business and Financial Reporting There are a number of factors that affect the performance of our business and the comparability of our results from period to period including: • Organic Growth. Part of our strategy is to generate organic growth by expanding our existing client relationships, continuing to win new clients, pursuing channel expansion enhancing our service offerings, digital technology solutions, developing our international platform, delivering operational efficiencies and expanding into logical adjacencies. We believe that by pursuing these organic growth opportunities we will be able to continue to enhance our value proposition to our clients and thereby grow our business. • Acquisitions and Divestitures. We have grown our business in part by acquiring businesses, both domestic and international. 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. • 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. ” 21 • Seasonality. Our quarterly results are seasonal in nature, with the fourth fiscal quarter typically generating a higher proportion of our revenues than other fiscal quarters, as a result of higher consumer spending. We generally record slightly lower revenues in the first fiscal quarter of each year, as our clients begin to roll out new programs for the year, and consumer spending generally is less in the first fiscal quarter than other quarters. The timing of our clients’ marketing expenses, associated with marketing campaigns and new product launches, can also result in fluctuations from one quarter to another. How We Assess the Performance of Our Business Revenues Revenues related to the Branded Services segment are primarily recognized in the form of commissions, fee-for-service and cost-plus fees for providing headquarter relationship management, execution of merchandising strategies and omni-commerce marketing services. Experiential Services segment revenues are primarily recognized in the form of fee-for-service and cost-plus fees for providing in-store, digital sampling and demonstrations, where the Company manages highly customized, large-scale sampling programs for leading brands and retailers. Retailer Services segment revenues are primarily recognized in the form of commissions, fee-for-service and cost-plus fees for providing consulting services related to private brand development, the execution of merchandising strategies and marketing strategies within retailer locations, including retail media networks and analyzing shopper behavior. Cost of Revenues Our cost of revenues consists of both fixed and variable expenses primarily attributable to the hiring, training, compensation and benefits provided to both full-time and part-time associates, as well as other project-related expenses. A number of costs associated with our associates are subject to external factors, including inflation, increases in market specific wages and minimum wage rates at federal, state and municipal levels and minimum pay levels for exempt roles. Additionally, when we enter into certain new client relationships, we may experience an initial increase in expenses associated with hiring, training and other items needed to launch the new relationship. Selling, General, and Administrative Expenses Selling, general, and administrative expenses consist primarily of salaries, payroll taxes and benefits for corporate personnel. Other overhead costs include information technology, professional services fees, including accounting and legal services, and other general corporate expenses. We also incur expenses operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for general and director and officer insurance, investor relations, and related professional services. Additionally, included in selling, general, and administrative expenses are costs 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. Other (Income) Expenses Change in Fair Value of Warrant Liability Change in fair value of warrant liability represents a non-cash (income) expense resulting from a fair value adjustment to warrant liability with respect to the private placement warrants. Based on the availability of sufficient observable information, we determine the fair value of the liability classified private placement warrants by approximating the value with the price of the public warrants at the respective period end, which is inherently less subjective and judgmental given it is based on observable inputs. 22 Interest Expense Interest expense relates primarily to borrowings under our debt agreements as described below as well as gains on repurchases of debt and fair value adjustments for our derivative financial instruments. 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, 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 March 31, 2025 and 2024, 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 receipts for services performed, borrowings under the Revolving Credit Facility and other debt. Our principal uses of cash are operating expenses, working capital requirements, investments in our technology platforms, repayment of debt and repurchases of our Class A common shares. 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 divestiture related expenses, (viii) restructuring expenses, (ix) reorganization expenses, (x) litigation expenses, (xi) amortization of intangible assets, (xii) gain on repurchases of Term Loan Facility and Notes debt, (xiii) costs associated with (recovery from) the Take 5 Matter, (xiv) other adjustments that management believes are helpful in evaluating our operating performance, and (xv) related tax adjustments. We present Adjusted Net Income because we use it as a supplemental measure to evaluate the performance of our business in a way that also considers our ability to generate profit without the impact of items that we do not believe are indicative of our operating performance or are unusual or infrequent in nature and aid in the comparability of our performance from period to period. Adjusted Net Income should not be considered as an alternative for Net (loss) income, our most directly comparable measure presented on a GAAP basis. 23 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 (recovery from) the Take 5 Matter, (xvi) EBITDA for economic interests in investments and (xvii) other adjustments that management believes are helpful in evaluating our operating performance. Adjusted EBITDA by Segment means, with respect to each segment, operating income (loss) from continuing operations before (i) depreciation, (ii) amortization of intangible assets, (iii) impairment of goodwill, (iv) stock based compensation expense, (v) equity-based compensation of Karman Topco L.P., (vi) fair value adjustments of contingent consideration related to acquisitions, (vii) acquisition and divestiture related expenses, (viii) restructuring expenses, (ix) reorganization expenses, (x) litigation expenses (recovery), (xi) costs associated with (recovery from) the Take 5 Matter, (xii) EBITDA for economic interests in investments and (xiii) other adjustments that management believes are helpful in evaluating our operating performance, in each case, attributable to such segment. We present Adjusted EBITDA from Continuing Operations, Adjusted EBITDA from Discontinued Operations and Adjusted EBITDA by Segment because they are key operating measures used by us to assess our financial performance. These measures adjust for items that we believe do not reflect the ongoing operating performance of our business, such as certain non-cash items, unusual or infrequent items or items that change from period to period without any material relevance to our operating performance. We evaluate these measures in conjunction with our results according to GAAP because we believe they provide a more complete understanding of factors and trends affecting our business than GAAP measures alone. Furthermore, the agreements governing our indebtedness contain covenants and other tests based on measures substantially similar to Adjusted EBITDA 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. 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 as well as to generate operational efficiencies during a time of market challenges affecting the clients. The overall project was substantially completed at the end of fiscal year 2024. We are in the process of implementing a new global enterprise resource planning (“ERP”) system, which is expected to occur in phases throughout fiscal year 2025. During the three months ended March 31, 2025, the Company deployed the new ERP for our North America operations. As part of the implementation, the Company completed significant pre-implementation testing and post-implementation testing and monitoring and recognized reorganization related expenses related to the implementation. 24 Results of Operations for the Three Months Ended March 31, 2025 and 2024 The following table sets forth items derived from the Company’s consolidated statements of operations for the three months ended March 31, 2025 and 2024 in dollars and as a percentage of total revenues. Three Months Ended March 31, (amounts in thousands) 2025 2024 Revenues $ 821,792 100.0 % $ 861,412 100.0 % Cost of revenues 722,754 87.9 % 751,844 87.3 % Selling, general, and administrative expenses 64,865 7.9 % 89,081 10.3 % Depreciation and amortization 50,361 6.1 % 49,748 5.8 % Loss from equity method investments (1,567 ) (0.2 )% 689 0.1 % Total operating expenses 836,413 101.8 % 891,362 103.5 % Operating loss from continuing operations (14,621 ) (1.8 )% (29,950 ) (3.5 )% Other expenses: Change in fair value of warrant liability 10 0.0 % 287 0.0 % Interest expense, net 34,360 4.2 % 35,761 4.2 % Total other expenses 34,370 4.2 % 36,048 4.2 % Loss from continuing operations before provision for (benefit from) income taxes (48,991 ) (6.0 )% (65,998 ) (7.7 )% Provision for (benefit from) income taxes from continuing operations 7,139 0.9 % (15,865 ) (1.8 )% Net loss from continuing operations (56,130 ) (6.8 )% (50,133 ) (5.8 )% Net income from discontinued operations, net of tax — 0.0 % 47,018 5.5 % Net loss $ (56,130 ) (6.8 )% $ (3,115 ) (0.4 )% Less: net income from discontinued operations attributable to noncontrolling interest, net of tax — 0.0 % 2,192 0.3 % Net loss attributable to stockholders of Advantage Solutions Inc. $ (56,130 ) (6.8 )% $ (5,307 ) (0.6 )% Other Financial Data Adjusted Net Income (1) $ (16,102 ) (2.0 )% $ 9,230 1.1 % Adjusted EBITDA from Continuing Operations (1) $ 58,181 7.1 % $ 70,639 8.2 % (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 March 31, 2025 and 2024 Revenues Three Months Ended March 31, Change (amounts in thousands) 2025 2024 $ % Branded Services $ 289,841 $ 329,054 $ (39,213 ) (11.9 )% Experiential Services 314,020 307,351 6,669 2.2 % Retailer Services 217,931 225,007 (7,076 ) (3.1 )% Total revenues $ 821,792 $ 861,412 $ (39,620 ) (4.6 )% Total revenues decreased by $39.6 million, or 4.6%, during the three months ended March 31, 2025, as compared to the three months ended March 31, 2024. The Branded Services segment revenues decreased $39.2 million during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. The decrease in revenues was primarily due to a weaker economic environment for our consumer package goods clients and an intentional client resignation during fiscal year 2024. 25 The Experiential Services segment revenues increased $6.7 million during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. The increase in revenues was primarily due to an increase in our events per day volume. The Retailer Services segment revenues decreased $7.1 million during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. The decrease in revenues was primarily due to staffing challenges, partially offset by improved pricing strategies. Cost of Revenues Cost of revenues as a percentage of revenues for the three months ended March 31, 2025 was 87.9%, as compared to 87.3% for the three months ended March 31, 2024. The increase as a percentage of revenues was largely attributable to higher IT-related expenses, partially offset by lower compensation expense. Selling, General, and Administrative Expenses Selling, general, and administrative expenses as a percentage of revenues for the three months ended March 31, 2025 was 7.9%, compared to 10.3% for the three months ended March 31, 2024. The decrease as a percentage of revenues was primarily due to a $22.8 million decrease in costs associated with our internal reorganization activities. Depreciation and Amortization Expense Depreciation and amortization expense was $50.4 million for the three months ended March 31, 2025 compared to $49.7 million for the three months ended March 31, 2024. The increase was due to a $1.9 million increase in depreciation expense as a result of an increase in property and equipment, partially offset by a $1.4 million decrease in amortization expense as a result of intangible asset impairment charges incurred during fiscal year 2024. Operating (Loss) Income from Continuing Operations Three Months Ended March 31, Change (amounts in thousands) 2025 2024 $ % Branded Services $ (15,322 ) $ (22,118 ) $ 6,796 (30.7 )% Experiential Services (3,504 ) (3,642 ) 138 (3.8 )% Retailer Services 4,205 (4,190 ) 8,395 (200.4 )% Total operating loss from continuing operations $ (14,621 ) $ (29,950 ) $ 15,329 (51.2 )% In the Branded Services segment, the decrease in operating loss during the three months ended March 31, 2025 was primarily due to a decrease in costs associated with our internal reorganization activities, partially offset by the decrease in revenues described above. In the Experiential Services segment, operating loss during the three months ended March 31, 2025 was relatively unchanged. During the three months ended March 31, 2025, revenue increased as described above, however this increase was largely offset by increased labor costs. In the Retailer Services segment, operating loss improved $8.4 million to operating income for the three months ended March 31, 2025. The increase in operating income was primarily due to a decrease in costs associated with our internal reorganization activities, partially offset by the decrease in revenues described above. 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 March 31, 2025 compared to $0.3 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 March 31, 2024. 26 Interest Expense, net Interest expense, net decreased by $1.4 million, or 3.9%, to $34.4 million for the three months ended March 31, 2025, from $35.8 million for the three months ended March 31, 2024. The decrease in interest expense was primarily due to lower debt balance as a result of repurchases of Term Loan Facility and Notes as further described in “ Liquidity and Capital Resources—Description of Credit Facilities—Senior Secured Notes, ” partially offset by a $0.9 million decrease in gains from the repurchases of Notes and a $5.8 million increase for fair value adjustments for our derivative financial instruments. Provision for (Benefit from) Income Taxes Provision for income taxes was $7.1 million for the three months ended March 31, 2025 as compared to $15.9 million of benefit from income taxes for the three months ended March 31, 2024. The fluctuation in the income tax provision was primarily attributable to a decrease in the pretax loss during the three months ended March 31, 2025 in comparison to the pretax loss incurred during the three months ended March 31, 2024. Further, an additional valuation allowance was established on interest expense limitation carryforward for the three months ended March 31, 2025. Net Loss from Continuing Operations Net loss from continuing operations was $56.1 million for the three months ended March 31, 2025, compared to net loss from continuing operations of $50.1 million for the three months ended March 31, 2024. The increase in net loss from continuing operations was primarily driven by the decrease in revenues noted above, partially offset by the decrease in expense associated with our internal reorganization activities. Adjusted Net Income The decrease in Adjusted Net Income for the three months ended March 31, 2025 was primarily attributable to a decrease in revenues, partially offset by a decrease in selling, general and administrative expenses. 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 March 31, Change (amounts in thousands) 2025 2024 $ % Branded Services $ 27,945 $ 34,334 $ (6,389 ) (18.6 )% Experiential Services 12,069 16,692 (4,623 ) (27.7 )% Retailer Services 18,167 19,613 (1,446 ) (7.4 )% Total Adjusted EBITDA from Continuing Operations $ 58,181 $ 70,639 $ (12,458 ) (17.6 )% Adjusted EBITDA from Continuing Operations was $58.2 million for the three months ended March 31, 2025, compared to $70.6 million for the three months ended March 31, 2024. The decrease in Adjusted EBITDA was primarily attributable to a decrease in the Branded Services segment, which was driven by the decrease in revenues as described above partially offset by a decrease in costs associated with our internal reorganization activities. In the Experiential Services segment, the decrease in Adjusted EBITDA was primarily driven by an increase in labor costs, partially offset by the increase in revenues as described above. In the Retailer Services segment, the decrease in Adjusted EBITDA was primarily attributable to the decrease in revenues described above, partially offset by a decrease in costs associated with our internal reorganization activities. For a reconciliation of Adjusted EBITDA from Continuing Operations to Net income, see “—Non-GAAP Financial Measures.” 27 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) gain on repurchases of Term Loan Facility and Notes debt, (xiii) costs associated with (recovery from) the Take 5 Matter, (xiv) other adjustments that management believes are helpful in evaluating our operating performance, and (xv) related tax adjustments. We present Adjusted Net Income because we use it as a supplemental measure to evaluate the performance of our business in a way that also considers our ability to generate profit without the impact of items that we do not believe are indicative of our operating performance or are unusual or infrequent in nature and aid in the comparability of our performance from period to period. 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 March 31, (in thousands) 2025 2024 Net loss from continuing operations $ (56,130 ) $ (50,133 ) Add: Equity-based compensation of Karman Topco L.P. (a) (1,524 ) 390 Change in fair value of warrant liabilities 10 287 Fair value adjustments related to contingent consideration related to acquisitions (b) — 778 Acquisition and divestiture related expenses (c) 423 440 Restructuring expenses (d) 931 — Reorganization expenses (e) 12,240 35,052 Litigation expenses (f) 523 284 Amortization of intangible assets (g) 42,915 44,277 Gain on repurchases of Term Loan Facility and Senior Secured Notes (h) (1,624 ) (2,669 ) Costs associated with the Take 5 Matter (i) 308 240 Tax adjustments related to non-GAAP adjustments (j) (14,174 ) (19,716 ) Adjusted Net Income $ (16,102 ) $ 9,230 28 (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 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 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 and employee termination benefits associated with a reduction-in-force 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 a gain associated with the repurchases of Term Loan Facility and 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 months ended March 31, 2025 and 2024. (i) Represents costs associated with collection and remediation activities related to the Take 5 Matter, primarily professional fees and other related costs. (j) 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 (recovery from) the Take 5 Matter, (xvi) EBITDA for economic interests in investments and (xvii) other adjustments that management believes are helpful in evaluating our operating performance. Adjusted EBITDA by Segment means, with respect to each segment, operating income (loss) from continuing operations before (i) depreciation, (ii) amortization of intangible assets, (iii) impairment of goodwill, (iv) stock-based compensation expense, (v) equity-based compensation of Karman Topco L.P., (vi) fair value adjustments of contingent consideration related to acquisitions, (vii) acquisition and divestiture related expenses, (viii) restructuring expenses, (ix) reorganization expenses, (x) litigation expenses (recovery), (xi) costs associated with (recovery from) the Take 5 Matter, (xii) EBITDA for economic interests in investments and (xiii) other adjustments that management believes are helpful in evaluating our operating performance, in each case, attributable to such segment. 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 – 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 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 29 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 March 31, (in thousands) 2025 2024 Net loss from continuing operations $ (56,130 ) $ (50,133 ) Add: Interest expense, net 34,360 35,761 Provision for (benefit from) income taxes from continuing operations 7,139 (15,865 ) Depreciation and amortization 50,361 49,748 Changes in fair value of warrant liability 10 287 Stock-based compensation expense (a) 6,485 8,554 Equity-based compensation of Karman Topco L.P. (b) (1,524 ) 390 Fair value adjustments related to contingent consideration related to acquisitions (c) — 778 Acquisition and divestiture related expenses (d) 423 440 Restructuring expenses (e) 931 — Reorganization expenses (f) 12,240 35,052 Litigation expenses (g) 523 284 Costs associated with the Take 5 Matter (h) 308 240 EBITDA for economic interests in investments (i) 3,055 5,103 Adjusted EBITDA from Continuing Operations $ 58,181 $ 70,639 Reconciliation of Adjusted EBITDA from Discontinued Operations to Net income from discontinued operations is provided in the following table: Discontinued Operations (in thousands) Three Months Ended March 31, 2024 Net income from discontinued operations, net of tax $ 47,018 Add: Interest expense, net 32 Provision for income taxes from discontinued operations 14,237 Depreciation and amortization 2,608 Gain on divestitures (k) (57,016 ) Stock-based compensation expense (a) (1,334 ) Fair value adjustments related to contingent consideration related to acquisitions (c) (89 ) Divestiture related expenses (d) 879 Reorganization expenses (f) 2,073 EBITDA for economic interests in investments (i) (289 ) Adjusted EBITDA from Discontinued Operations $ 8,119 30 Financial information by segment, including a reconciliation of Adjusted EBITDA by Segment to operating (loss) income, the closest GAAP financial measure, is provided in the following table: Branded Services segment Three Months Ended March 31, (in thousands) 2025 2024 Operating loss $ (15,322 ) $ (22,118 ) Add: Depreciation and amortization 31,462 31,987 Stock-based compensation expense (a) 2,172 3,926 Equity-based compensation of Karman Topco L.P. (b) (95 ) 497 Fair value adjustments related to contingent consideration related to acquisitions (c) — 778 Acquisition and divestiture related expenses (d) 378 74 Restructuring expenses (e) 358 — Reorganization expenses (f) 5,455 13,656 Litigation expenses (g) 174 191 Costs associated with the Take 5 Matter (h) 308 240 EBITDA for economic interests in investments (i) 3,055 5,103 Branded Services segment Adjusted EBITDA $ 27,945 $ 34,334 Experiential Services segment Three Months Ended March 31, (in thousands) 2025 2024 Operating loss $ (3,504 ) $ (3,642 ) Add: Depreciation and amortization 10,537 9,920 Stock-based compensation expense (a) 1,792 1,928 Equity-based compensation of Karman Topco L.P. (b) (729 ) (45 ) Acquisition and divestiture related expenses (d) 7 106 Restructuring expenses (e) 186 — Reorganization expenses (f) 3,581 8,252 Litigation expenses (g) 199 173 Experiential Services segment Adjusted EBITDA $ 12,069 $ 16,692 Retailer Services segment Three Months Ended March 31, (in thousands) 2025 2024 Operating income (loss) $ 4,205 $ (4,190 ) Add: Depreciation and amortization 8,362 7,841 Stock-based compensation expense (a) 2,521 2,700 Equity-based compensation of Karman Topco L.P. (b) (700 ) (62 ) Acquisition and divestiture related expenses (d) 38 260 Restructuring expenses (e) 387 — Reorganization expenses (f) 3,204 13,144 Litigation expenses (recovery) (g) 150 (80 ) Retailer Services segment Adjusted EBITDA $ 18,167 $ 19,613 31 (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 equity-based compensation expense associated with grants of Common Series D Units of Karman Topco L.P. made to one of the sponsors of the Company. (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 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 and employee termination benefits associated with a reduction-in-force 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 costs associated with collection and remediation activities related to the Take 5 Matter, primarily professional fees and other related costs. (i) Represents additions to reflect our proportional share of Adjusted EBITDA related to our equity method investments and reductions to remove the Adjusted EBITDA related to the minority ownership percentage of the entities that we fully consolidate in our financial statements. 32 Liquidity and Capital Resources Our principal sources of liquidity are cash receipts for services performed, borrowings under the Revolving Credit Facility, and other debt. Our principal uses of cash are operating expenses, working capital requirements, 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: Three Months Ended March 31, (in thousands) 2025 2024 Net cash used in operating activities $ (39,627 ) $ (9,376 ) Net cash (used in) provided by investing activities (18,432 ) 69,456 Net cash used in financing activities (22,139 ) (66,882 ) Net effect of foreign currency changes on cash, cash equivalents and restricted cash (3,685 ) (2,136 ) Net change in cash, cash equivalents and restricted cash $ (83,883 ) $ (8,938 ) Net Cash Used in Operating Activities Net cash used in operating activities from continuing operations during the three months ended March 31, 2025 consisted of net loss of $56.1 million adjusted for certain non-cash items, including gain on repurchases of Notes, net of cost of extinguishments, of $1.6 million, depreciation and amortization of $50.4 million, stock-based compensation of $6.5 million and effects of changes in working capital. Net cash used in operating activities from continuing operations during the three months ended March 31, 2024 consisted of net loss of $50.1 million adjusted for certain non-cash items, including depreciation and amortization of $49.8 million, stock-based compensation of $8.6 million and effects of changes in working capital. The change in net cash used in operating activities from continuing operations during the three months ended March 31, 2025 relative to the same period in 2024 was primarily due to an increase in accounts receivable during the three months ended March 31, 2025 as compared to a decrease in accounts receivable during the three months ended March 31, 2024. Net Cash (Used in) Provided by Investing Activities Net cash used in investing activities from continuing operations during the three months ended March 31, 2025 primarily consisted of the purchase of property and equipment of $15.1 million, primarily related to our enterprise resource planning initiative, which includes upgrading our information system platform, and the purchase of investments in unconsolidated affiliates of $3.3 million. Net cash provided by investing activities during the three months ended March 31, 2024 primarily consisted of the purchase of property and equipment of $15.4 million and proceeds from divestitures of $87.4 million. Net Cash Used in Financing Activities Cash flows used in financing activities from continuing operations during the three months ended March 31, 2025 were primarily related to repurchases of Notes of $18.2 million, repayment of principal on our Term Loan Facility of $3.3 million, payments for taxes related to net share settlement of $0.7 million, payments for taxes related to share settlement under the 2020 Incentive Award Plan and payments related to the share repurchase program of $0.9 million. Cash flows used in financing activities during the three months ended March 31, 2024 were primarily related to repurchases of the Term Loan Facility of $47.9 million, repayment of principal on our Term Loan Facility of $3.3 million, payments of contingent consideration and holdback payments of $1.9 million, payments for taxes related to net share settlement of $3.3 million, partially offset by $1.2 million related to proceeds from the issuance of Class A common stock. 33 Description of Credit Facilities Senior Secured Credit Facilities Advantage Sales & Marketing Inc. (the “Borrower”), our indirect wholly-owned subsidiary, 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 March 31, 2025, we had unused capacity under our Revolving Credit Facility available to us of $451.0 million, subject to borrowing base limitations (without giving effect to approximately $51.6 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 34 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 March 31, 2025. 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 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 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 Issuer may voluntarily prepay loans or reduce commitments under the 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 $20.0 million principal amount of the Notes during the three months ended March 31, 2025. The Company 35 recognized a gain on the repurchase of the Notes of $1.8 million for the three months ended March 31, 2025, as a component of “Interest expense, net” in the Condensed Consolidated Statements of Operations and Comprehensive Loss. Interest and maturity Interest on the Notes is payable semi-annually in arrears on May 15 and November 15 at a rate of 6.50% per annum. The Notes will mature on November 15, 2028. Guarantees The Notes are guaranteed by Holdings and each of the Issuer’s direct and indirect wholly owned material U.S. subsidiaries (subject to certain permitted exceptions) and Canadian subsidiaries (subject to certain permitted exceptions, including exceptions based on immateriality thresholds of aggregate assets and revenues of Canadian subsidiaries) that is a borrower or guarantor under the Term Loan Facility. Security and Ranking The Notes and the related guarantees are the general, senior secured obligations of the Issuer and the Notes Guarantors, are secured on a first-priority pari passu basis by security interests on the fixed asset collateral (equal in priority with liens securing the Term Loan Facility), and are secured on a second-priority basis by security interests on the current asset collateral (second in priority to the liens securing the Revolving Credit Facility and equal in priority with liens securing the Term Loan Facility), in each case, subject to certain limitations and exceptions and permitted liens. The Notes and related guarantees rank (i) equally in right of payment with all of the Issuer’s and the Guarantors’ senior indebtedness, without giving effect to collateral arrangements (including the Senior Secured Credit Facilities) and effectively equal to all of the Issuer’s and the Guarantors’ senior indebtedness secured on the same priority basis as the Notes, including the Term Loan Facility, (ii) effectively subordinated to any of the Issuer’s and the Guarantors’ indebtedness that is secured by assets that do not constitute collateral for the Notes to the extent of the value of the assets securing such indebtedness and to indebtedness that is secured by a senior-priority lien, including the Revolving Credit Facility to the extent of the value of the current asset collateral and (iii) structurally subordinated to the liabilities of the Issuer’s non-Guarantor subsidiaries. Optional redemption for the Notes The Notes are redeemable at the applicable redemption prices specified in the Indenture plus accrued and unpaid interest. If the Issuer or its restricted subsidiaries sell certain of their respective assets or experience specific kinds of changes of control, subject to certain exceptions, the Issuer must offer to purchase the Notes at par. In connection with any offer to purchase all Notes, if holders of no less than 90% of the aggregate principal amount of Notes validly tender their Notes, the Issuer is entitled to redeem any remaining Notes at the price offered to each holder. The Issuer may voluntarily prepay loans or reduce commitments under the Notes, in whole or in part without premium or penalty. Restrictive covenants The Notes are subject to covenants that, among other things limit the Issuer’s ability and its restricted subsidiaries’ ability to: incur additional indebtedness or guarantee indebtedness; pay dividends or make other distributions in respect of, or repurchase or redeem, the Issuer’s or a parent entity’s capital stock; prepay, redeem or repurchase certain indebtedness; issue certain preferred stock or similar equity securities; make loans and investments; sell or otherwise dispose of assets; incur liens; enter into transactions with affiliates; enter into agreements restricting the Issuer’s subsidiaries’ ability to pay dividends; and consolidate, merge or sell all or substantially all of the Issuer’s assets. Most of these covenants will be suspended on the Notes so long as they have investment grade ratings from both Moody’s Investors Service, Inc. and S&P Global Ratings and so long as no default or event of default under the Indenture has occurred and is continuing. 36 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 2024 Annual Report. Cash and Cash Equivalents Held Outside the United States As of March 31, 2025 and December 31, 2024, $67.5 million and $65.0 million, respectively, of our cash and cash equivalents were held by foreign subsidiaries. As of March 31, 2025, and December 31, 2024, $25.2 million and $18.5 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 $0.6 million of withholding tax as of March 31, 2025 for unremitted earnings in Canada with respect to which we do not have an indefinite reinvestment assertion. We will continue to evaluate our cash needs, however we currently do not intend, nor do we foresee a need, to repatriate funds from the foreign subsidiaries except for Canada. We have continued to assert indefinite reinvestment on all other earnings as it is necessary for continuing operations and to grow the business. If at a point in the future our assertion changes, we will evaluate tax-efficient means to repatriate the income. In addition, we expect existing domestic cash and cash flows from operations to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as debt repayment and capital expenditures, for at least the next 12 months and thereafter for the foreseeable future. If we should require more capital in the United States than is generated by our domestic operations, for example, to fund significant discretionary activities such as business acquisitions or to settle debt, we could elect to repatriate future earnings from foreign jurisdictions. These alternatives could result in higher income tax expense or increased interest expense. We consider the majority of the undistributed earnings of our foreign subsidiaries, as of March 31, 2025, to be indefinitely reinvested and, accordingly, no provision has been made for taxes in excess of the $0.6 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 2024 Annual Report and did not materially change during the three months ended March 31, 2025. 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 our annual report for fiscal year 2025. The new standard is expected to be applied prospectively, 37 but retrospective application is permitted. We are currently evaluating the impact of ASU 2023-09 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”), and in January 2025, the FASB issued ASU 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date (“ASU 2025-01”). ASU 2024-03 requires public entities to disclose additional information about specific expense categories in the notes to the financial statements on an interim and annual basis. ASU 2024-03, as clarified by ASU 2025-01, is effective for us 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. We are currently evaluating the impact of ASU 2024-03 on the consolidated financial statements and related disclosures. Other new accounting pronouncements recently issued or newly effective were not applicable to us, did not have a material impact on our condensed consolidated financial statements or are not expected to have a material impact on our condensed consolidated financial statements. 38