Advantage Solutions Inc 10-Q for FY2025 Q1
Advantage Solutions Inc. (ADV)
About this 10-Q
Advantage Solutions Inc filed this 10-Q on May 12, 2025, covering the quarter ended March 31, 2025 (FY2025 Q1).
Headline figures
Quarter ended March 31, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $821.79M
- down 4.6% from $861.41M a year earlier
- Net loss
- $56.13M
- compared with a net loss of $5.31M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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(I.R.S. Employer |
(Address of principal executive offices)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
f
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of May 9, 2025, the registrant had
Advantage Solutions Inc.
TABLE OF CONTENTS
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
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Condensed Consolidated Statements of Stockholders’ Equity |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANTAGE SOLUTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share data) |
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March 31, 2025 |
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December 31, 2024 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable, net of allowance for expected credit losses of $ |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Other intangible assets, net |
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Investments in unconsolidated affiliates |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Current portion of long-term debt |
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$ |
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$ |
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Accounts payable |
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Accrued compensation and benefits |
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Other accrued expenses |
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Deferred revenues |
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Total current liabilities |
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Long-term debt, net of current portion |
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Deferred income tax liabilities |
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Other long-term liabilities |
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Total liabilities |
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Equity attributable to stockholders of Advantage Solutions Inc. |
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Common stock, $ |
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Additional paid in capital |
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Accumulated deficit |
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( |
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Loans to Karman Topco L.P. |
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( |
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Accumulated other comprehensive loss |
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Treasury stock, at cost; |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See Notes to the Condensed Consolidated Financial Statements.
3
ADVANTAGE SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
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Three Months Ended March 31, |
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(in thousands, except share and per share data) |
2025 |
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2024 |
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Revenues |
$ |
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$ |
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Cost of revenues (exclusive of depreciation and amortization shown separately below) |
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Selling, general, and administrative expenses |
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Depreciation and amortization |
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(Income) loss from equity method investments |
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Total operating expenses |
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Operating loss from continuing operations |
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Other expenses: |
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Change in fair value of warrant liabilities |
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Interest expense, net |
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Total other expenses, net |
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Loss from continuing operations before provision for (benefit from) income taxes |
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Provision for (benefit from) income taxes from continuing operations |
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( |
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Net loss from continuing operations |
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( |
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( |
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Net income from discontinued operations, net of tax |
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Net loss |
$ |
( |
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$ |
( |
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Less: net income from discontinued operations attributable to noncontrolling interest, net of tax |
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Net loss attributable to stockholders of Advantage Solutions Inc. |
$ |
( |
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$ |
( |
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Net loss per common share: |
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Basic loss per common share from continuing operations attributable to stockholders of Advantage Solutions Inc. |
$ |
( |
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$ |
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Basic earnings per common share from discontinued operations attributable to stockholders of Advantage Solutions Inc. |
$ |
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$ |
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Diluted net loss per share: |
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Diluted loss per common share from continuing operations attributable to stockholders of Advantage Solutions Inc. |
$ |
( |
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$ |
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Diluted earnings per common share from discontinued operations attributable to stockholders of Advantage Solutions Inc. |
$ |
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$ |
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Weighted-average number of common shares: |
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Basic |
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Diluted |
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Comprehensive Income (Loss): |
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Net loss attributable to stockholders of Advantage Solutions Inc. |
$ |
( |
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$ |
( |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments |
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( |
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Total comprehensive loss attributable to stockholders of Advantage Solutions Inc. |
$ |
( |
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$ |
( |
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See Notes to the Condensed Consolidated Financial Statements.
4
ADVANTAGE SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Treasury Stock |
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Paid-in |
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Accumulated |
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Loans to |
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Comprehensive |
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Stockholders' |
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(in thousands, except share data) |
Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Topco |
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Loss |
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Equity |
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Balance at January 1, 2025 |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Comprehensive loss |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Total comprehensive loss |
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( |
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Interest on loans to Karman Topco L.P. |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Purchase of treasury stock |
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( |
) |
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— |
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( |
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— |
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— |
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— |
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— |
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( |
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Equity-based compensation of Karman Topco L.P. |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
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Shares issued under 2020 Employee Stock Purchase Plan |
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— |
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— |
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— |
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— |
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— |
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— |
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Payments for taxes related to net share settlement under 2020 Incentive Award Plan |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
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Shares issued under 2020 Incentive Award Plan |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2025 |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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$ |
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Accumulated |
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Advantage |
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Additional |
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Other |
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Solutions Inc. |
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Total |
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Common Stock |
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Treasury Stock |
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Paid-in |
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Accumulated |
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Loans to |
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Comprehensive |
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Stockholders' |
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Noncontrolling |
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Stockholders' |
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(in thousands, except share data) |
Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Topco |
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Loss |
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Equity |
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Interest |
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Equity |
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Balance at January 1, 2024 |
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$ |
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$ |
( |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Comprehensive (loss) income |
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Net (loss) income |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
) |
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( |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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( |
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( |
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Total comprehensive loss |
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( |
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( |
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Interest on loans to Karman Topco L.P. |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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— |
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( |
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Purchase of treasury stock |
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( |
) |
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— |
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( |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Equity-based compensation of Karman Topco L.P. |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares issued under 2020 Employee Stock Purchase Plan |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Payments for taxes related to net share settlement under 2020 Incentive Award Plan |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Shares issued under 2020 Incentive Award Plan |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2024 |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
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$ |
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See Notes to the Condensed Consolidated Financial Statements.
5
ADVANTAGE SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Three Months Ended March 31, |
|
|||||
(in thousands) |
|
2025 |
|
|
2024 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES |
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|
|
|
|
|
||
Net loss from continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
|
||
Non-cash interest income |
|
|
( |
) |
|
|
( |
) |
Amortization of deferred financing fees |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Change in fair value of warrant liability |
|
|
|
|
|
|
||
Fair value adjustments related to contingent consideration |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
( |
) |
|
Equity-based compensation of Karman Topco L.P. |
|
|
( |
) |
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
||
(Income) loss from equity method investments |
|
|
( |
) |
|
|
|
|
Distribution received from equity method investments |
|
|
|
|
|
|
||
Gain on repurchases of Senior Secured Notes and Term Loan Facility debt |
|
|
( |
) |
|
|
( |
) |
Loss on disposal of property and equipment |
|
|
|
|
|
|
||
Changes in operating assets and liabilities, net of effects from divestitures: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
( |
) |
|
|
|
|
Prepaid expenses and other assets |
|
|
|
|
|
|
||
Accounts payable |
|
|
|
|
|
|
||
Accrued compensation and benefits |
|
|
( |
) |
|
|
( |
) |
Deferred revenues |
|
|
|
|
|
( |
) |
|
Other accrued expenses and other liabilities |
|
|
|
|
|
( |
) |
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
||
Purchase of investments in unconsolidated affiliates |
|
|
( |
) |
|
|
( |
) |
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from divestitures, net of cash |
|
|
|
|
|
|
||
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Principal payments on long-term debt |
|
|
( |
) |
|
|
( |
) |
Repurchases of Senior Secured Notes and Term Loan Facility debt |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of common stock |
|
|
|
|
|
|
||
Payments for taxes related to net share settlement under 2020 Incentive Award Plan |
|
|
( |
) |
|
|
( |
) |
Contingent consideration payments |
|
|
|
|
|
( |
) |
|
Purchase of treasury stock |
|
|
( |
) |
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net effect of foreign currency changes on cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Net change in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
SUPPLEMENTAL CASH FLOW INFORMATION |
|
|
|
|
|
|
||
Purchases of property and equipment recorded in accounts payable and accrued expenses |
|
$ |
|
|
$ |
|
||
See Notes to the Condensed Consolidated Financial Statements.
6
ADVANTAGE SOLUTIONS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization and Significant Accounting Policies
Advantage Solutions Inc. (the “Company”) is a provider of outsourced solutions to consumer goods companies and retailers. The Company’s Class A common stock is listed on the Nasdaq Global Select Market under the symbol “ADV” and warrants to purchase the Class A common stock at an exercise price of $
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. The unaudited condensed consolidated financial statements do not include all of the information required by accounting principles generally accepted in the United States (“GAAP”). The Condensed Consolidated Balance Sheet at December 31, 2024 was derived from the audited Consolidated Balance Sheet at that date and does not include all the disclosures required by GAAP. In the opinion of management, all adjustments which are of a normal recurring nature and necessary for a fair statement of the results as of March 31, 2025 and for the three months ended March 31, 2025 and 2024 have been reflected in the condensed consolidated financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2024 and the related footnotes thereto. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period.
As of January 1, 2024, the Company reorganized its portfolio of businesses into a new, simplified structure that more closely aligns its business capabilities with economic buyers. As a result of this reorganization, the Company revised its reportable segments and identified non-core businesses for disposition (“Divestiture plan”). In the first quarter of fiscal year 2024, the Company determined its Divestiture plan met the criteria for discontinued operations as it represented a strategic shift that had a major effect on the Company’s operations and financial results. As such, the results of businesses meeting the criteria to be classified as held for sale or disposed of in accordance with the Company’s Divestiture plan were reclassified to discontinued operations. Refer to Note 2—Discontinued Operations for additional information on the Company’s discontinued operations.
Certain prior period balances related to the Company's discontinued operations have been reclassified to conform to the current presentation in the condensed consolidated financial statements and accompanying notes. The notes to the condensed consolidated financial statements are presented on a continuing operations basis unless otherwise noted. Refer to Note 2—Discontinued Operations for additional information on the Company’s discontinued operations.
Revenue Recognition
The Company recognizes revenue when control of promised goods or services is transferred to the client in an amount that reflects the consideration that the Company expects to be entitled to in exchange for such goods or services. Substantially all of the Company’s contracts with clients involve the transfer of a service to the client, which represents a performance obligation that is satisfied over time because the client simultaneously receives and consumes the benefits of the services provided. In most cases, the contracts provide for a performance obligation that is comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). For these contracts, the Company allocates the ratable portion of the consideration based on the services provided in each period of service to such period.
Revenues related to the Branded Services segment are primarily recognized in the form of commissions, fee-for-service and cost-plus fees for providing headquarter relationship management, execution of merchandising strategies and omni-commerce marketing services.
Revenues within the Branded Services segment are further disaggregated between brokerage services, branded merchandising services and omni-commerce marketing services. Brokerage services revenues are primarily outsourced sales and services for branded consumer goods manufacturers at retailer headquarters, in-store and online. Branded
7
merchandising services relate to merchandising in-store and online for branded consumer goods manufacturers. Omni-commerce marketing services primarily relate to digital and field marketing services.
Experiential Services segment revenues are primarily recognized in the form of fee-for-service and cost-plus fees for providing in-store, digital sampling and demonstrations, where the Company manages highly customized, large-scale sampling programs for leading brands and retailers.
Retailer Services segment revenues are primarily recognized in the form of commissions, fee-for-service and cost-plus fees for providing consulting services related to private brand development, the execution of merchandising strategies and marketing strategies within retailer locations, including retail media networks and analyzing shopper behavior.
Revenues within the Retailer Services segment are further disaggregated between advisory services, retailer merchandising services and agency services to retailers. Advisory services primarily consist of consulting services related to private brand development. Retailer merchandising services primarily relate to the execution of merchandising strategies. Agency services primarily consist of providing marketing strategies within retail locations.
Disaggregated revenues were as follows:
|
|
Three Months Ended March 31, |
|
|||||
(in thousands) |
|
2025 |
|
|
2024 |
|
||
Branded Services |
|
|
|
|
|
|
||
Brokerage services |
|
$ |
|
|
$ |
|
||
Branded merchandising services |
|
|
|
|
|
|
||
Omni-commerce marketing services |
|
|
|
|
|
|
||
Total Branded Services revenue |
|
$ |
|
|
$ |
|
||
Experiential Services |
|
|
|
|
|
|
||
Experiential services |
|
$ |
|
|
$ |
|
||
Total Experiential Services revenue |
|
$ |
|
|
$ |
|
||
Retailer Services |
|
|
|
|
|
|
||
Retail merchandising services |
|
$ |
|
|
$ |
|
||
Advisory services |
|
|
|
|
|
|
||
Agency services |
|
|
|
|
|
|
||
Total Retailer Services revenue |
|
$ |
|
|
$ |
|
||
Total revenues |
|
$ |
|
|
$ |
|
||
Contract liabilities represent deferred revenues, which are cash payments that are received in advance of the Company’s satisfaction of the applicable obligation and are included in Deferred revenues in the Condensed Consolidated Balance Sheets. Deferred revenues are recognized as revenues when the related services are performed for the client. Revenues recognized during the three months ended March 31, 2025 that were included in Deferred revenues as of December 31, 2024 were $
Accounting Standards Recently Issued but Not Yet Adopted by the Company
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires entities to expand their existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid. The standard is effective for the Company's annual report for fiscal year 2025. The new standard is expected to be applied prospectively, but retrospective application is permitted. The Company is currently evaluating the impact of ASU 2023-09 on the consolidated financial statements and related disclosures.
In 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
8
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 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.
Other new accounting pronouncements recently issued or newly effective were not applicable to the Company, did not have a material impact on the condensed consolidated financial statements or are not expected to have a material impact on the condensed consolidated financial statements.
2. Discontinued Operations
2024 Divestitures
On January 31, 2024, the Company sold a collection of foodservice businesses. As part of the sale, the foodservice businesses were combined with an entity owned by the buyer, with the Company receiving approximately $
The investment is reported in “Investments in unconsolidated affiliates” on the Condensed Consolidated Balance Sheets and equity income (loss) reported in “(Income) loss from equity method investments” on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2025 and 2024. Transactions between the Company and the combined foodservice entity are considered to be related-party transactions subsequent to the divesture.
As of June 30, 2024, certain assets and liabilities of the Jun Group business were classified as held for sale. On July 31, 2024, the Company completed the sale of the Jun Group business in exchange for proceeds of approximately $185.0 million less any adjustments. The Company received approximately $130.0 million in cash upon completion of the sale. As part of the purchase agreement, the buyer has agreed to remit the remaining consideration to the Company in two additional installments of $22.5 million ($27.5 million less $5.0 million estimated adjustments) and $27.5 million, 12 and 18 months, respectively, after the completion of the sale.
9
The following table presents the summarized statements of operations of discontinued operations.
(in thousands) |
|
Three Months Ended |
|
|
Revenues |
|
$ |
|
|
Cost of revenues (exclusive of depreciation and amortization shown separately below) |
|
|
|
|
Selling, general, and administrative expenses |
|
|
|
|
Gain on divestitures |
|
|
( |
) |
Depreciation and amortization |
|
|
|
|
Total operating expenses |
|
|
( |
) |
Operating income from discontinued operations |
|
|
|
|
Other expenses: |
|
|
|
|
Interest expense |
|
|
|
|
Total other expenses |
|
|
|
|
Income before income taxes from discontinued operations |
|
|
|
|
Provision for income taxes from discontinued operations |
|
|
|
|
Net income from discontinued operations, net of tax |
|
|
|
|
Less: net income from discontinued operations attributable to noncontrolling interest, net of tax |
|
|
|
|
Net income from discontinued operations attributable to stockholders of Advantage Solutions Inc. |
|
$ |
|
|
The following table provides a summary of the cash flows from discontinued operations:
(in thousands) |
|
Three Months Ended |
|
|
Net cash provided by operating activities from discontinued operations |
|
$ |
|
|
Net cash used in investing activities from discontinued operations |
|
|
( |
) |
Net cash used in financing activities from discontinued operations |
|
|
( |
) |
Net effect of foreign currency changes on cash from discontinued operations |
|
|
( |
) |
Net change in cash, cash equivalents and restricted cash from discontinued operations |
|
$ |
( |
) |
3. Goodwill and Intangible Assets
The carrying amount of goodwill as of March 31, 2025 and December 31, 2024 was $
The following tables set forth information for intangible assets:
|
|
|
|
March 31, 2025 |
|
|||||||||||||
(amounts in thousands) |
|
Weighted Average Useful Life |
|
Gross |
|
|
Accumulated |
|
|
Accumulated |
|
|
Net Carrying |
|
||||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Client relationships |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Trade names |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Total finite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trade name |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Total other intangible assets |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
10
|
|
|
|
December 31, 2024 |
|
|||||||||||||
(amounts in thousands) |
|
Weighted Average Useful Life |
|
Gross |
|
|
Accumulated |
|
|
Accumulated |
|
|
Net Carrying |
|
||||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Client relationships |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Trade names |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Total finite-lived intangible assets |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Trade name |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Total other intangible assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Amortization of intangible assets was $
As of March 31, 2025, estimated future amortization expense of the Company’s finite-lived intangible assets are as follows:
(in thousands) |
|
|
|
|
Remainder of 2025 |
|
$ |
128,707 |
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
Thereafter |
|
|
|
|
Total amortization expense |
|
$ |
|
|
4. Debt
(in thousands) |
March 31, 2025 |
|
|
December 31, 2024 |
|
||
Term Loan Facility |
$ |
|
|
$ |
|
||
Senior Secured Notes |
|
|
|
|
|
||
Total long-term debt |
|
|
|
|
|
||
Less: current portion |
|
|
|
|
|
||
Less: debt issuance costs |
|
|
|
|
|
||
Long-term debt, net of current portion |
$ |
|
|
$ |
|
||
As of March 31, 2025, the Company had $
The Company was in compliance with all of its affirmative and negative covenants under the Term Loan Facility and Notes as of March 31, 2025. In addition, the Company is required to repay the principal under the Term Loan Facility in the greater amount of its excess cash flow, as such term is defined in the agreement governing the Term Loan Facility, or $
11
payments of $
The Company voluntarily repurchased an aggregate of $
As of March 31, 2025, the Company had
5. Fair Value of Financial Instruments
The Company measures fair value based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based on a three-tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include: Level 1, defined as observable inputs, such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The following table sets forth the Company’s financial assets and liabilities measured on a recurring basis at fair value, categorized by input level within the fair value hierarchy.
|
|
March 31, 2025 |
|
|||||||||||||
(in thousands) |
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Liabilities measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total liabilities measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
December 31, 2024 |
|
|||||||||||||
(in thousands) |
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total assets measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest Rate Cap Agreements
The Company had interest rate collar contracts with an aggregate notional value of principal of $
As of March 31, 2025, the fair value of the Company’s outstanding interest collars of $
12
collars are recognized as a component of “Interest expense, net” in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
During the three months ended March 31, 2025 and 2024, the Company recorded a loss of $
Long-term Debt
The following tables set forth the carrying values and fair values of the Company’s financial liabilities measured on a recurring basis, categorized by input level within the fair value hierarchy:
(in thousands) |
|
Carrying Value |
|
|
Fair Value |
|
||
Balance at March 31, 2025 |
|
|
|
|
|
|
||
Term Loan Facility |
|
$ |
|
|
$ |
|
||
Senior Secured Notes |
|
|
|
|
|
|
||
Total long-term debt |
|
$ |
|
|
$ |
|
||
(in thousands) |
|
Carrying Value |
|
|
Fair Value |
|
||
Balance at December 31, 2024 |
|
|
|
|
|
|
||
Term Loan Facility |
|
$ |
|
|
$ |
|
||
Senior Secured Notes |
|
|
|
|
|
|
||
Total long-term debt |
|
$ |
|
|
$ |
|
||
6. Related Party Transactions
An officer of the Company serves as a member of the board of directors of a client of the Company. The Company recognized $1.3 million revenues from such client during the three months ended March 31, 2025 and 2024. Accounts receivable from this client were $0.7 million and $0.4 million as of March 31, 2025 and December 31, 2024, respectively.
Prior to April 1, 2025, a member of the board of directors of the Company served as an officer of a client of the Company. The Company recognized $2.2 million and $
Unconsolidated Affiliates
During the three months ended March 31, 2025 and 2024, the Company recognized revenues of $
7. Income Taxes
The Company’s effective tax rates were (
13
8. Segments
The Company’s reportable segments consist of Branded Services, Experiential Services, and Retailer Services. The reportable segments reported below are the segments of the Company for which separate financial information is available and for which segment results are evaluated regularly by the in deciding how to allocate resources and in assessing performance. Through the Company's Branded Services segment, the Company offers capabilities in brokerage, branded merchandising and omni-commerce marketing services to consumer goods manufacturers. Through the Company's Experiential Services segment, the Company expands the reach of consumer brands and retailer products to convert shoppers into buyers through sampling and product demonstration programs executed in-store and online. Through the Company's Retailer Services segment, the Company provides retailers with end-to-end advisory, retailer merchandising, and agency expertise to drive sales. The assets and liabilities of the Company are managed centrally and are reported internally in the same manner as the consolidated financial statements; therefore, no additional information is produced or included herein.
Discontinued operations are not included in the applicable reportable segments. Refer to Note 2—Discontinued Operations.
Revenues and significant expenses by segment are as follows:
|
Three Months Ended March 31, 2025 |
|
|||||||||||||
(in thousands) |
Branded Services |
|
|
Experiential Services |
|
|
Retailer Services |
|
|
Total Company |
|
||||
Revenues |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Less: |
|
|
|
|
|
|
|
|
|
|
|
||||
Compensation and benefits |
|
|
|
|
|
|
|
|
|
|
|
||||
Reimbursable expenses |
|
32,959 |
|
|
|
93,250 |
|
|
|
— |
|
|
|
126,209 |
|
Other segment items1 |
|
81,464 |
|
|
|
57,914 |
|
|
|
60,616 |
|
|
|
199,994 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
||||
Income from equity method investments |
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Total segment operating expenses from continuing operations |
|
305,163 |
|
|
|
317,524 |
|
|
|
213,726 |
|
|
|
836,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total segment operating (loss) income from continuing operations |
$ |
(15,322 |
) |
|
$ |
(3,504 |
) |
|
$ |
4,205 |
|
|
$ |
(14,621 |
) |
14
|
Three Months Ended March 31, 2024 |
|
|||||||||||||
(in thousands) |
Branded Services |
|
|
Experiential Services |
|
|
Retailer Services |
|
|
Total Company |
|
||||
Revenues |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Less: |
|
|
|
|
|
|
|
|
|
|
|
||||
Compensation and benefits |
|
|
|
|
|
|
|
|
|
|
|
||||
Reimbursable expenses |
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Other segment items1 |
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
||||
Loss from equity method investments |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total segment operating expenses from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total segment operating loss from continuing operations |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
(1) The “other segment items” category primarily consists of costs incurred in the execution of service obligations, including supplies, technology, and other direct expenses such as travel. These costs align with the segment-level information regularly provided to the CODM and represent the difference between revenue and the significant expense categories above in determining segment profitability.
9. Commitments and Contingencies
Litigation
The Company is involved in various legal matters that arise in the ordinary course of its business. Some of these legal matters purport or may be determined to be class and/or representative actions, or seek substantial damages, or penalties. The Company has accrued amounts in connection with certain legal matters, including with respect to certain of the matters described below. There can be no assurance, however, that these accruals will be sufficient to cover such matters or other legal matters or that such matters or other legal matters will not materially or adversely affect the Company’s financial position, liquidity, or results of operations.
The Company is involved in various litigation, including purported class or representative actions with respect to matters arising under the California Labor Code and Private Attorneys General Act.
The Company has also been involved in various litigation matters and arbitrations with respect to commercial matters arising with clients, vendors and third-party sellers of business.
In April 2018, the Company acquired the business of Take 5 Media Group (“Take 5”). As a result of an investigation into that business in 2019 that identified certain misconduct, the Company terminated all operations of Take 5 in July 2019 and offered refunds to clients of collected revenues attributable to the period after the Company’s acquisition. The Company refers to the foregoing as the “Take 5 Matter.” The Company voluntarily disclosed to the United States Attorney’s Office and the Federal Bureau of Investigation certain misconduct occurring at Take 5. The Company intends to cooperate in this and any other governmental investigations that may arise in connection with the Take 5 Matter. In October 2022, an arbitrator made a final award in favor of the Company. The Company is actively pursuing the collection of this award. The Company is currently unable to estimate if or when it will be able to collect any amounts associated with this arbitration. The Take 5 Matter may result in additional litigation against the Company, including lawsuits from clients, or governmental investigations, which may expose the Company to potential liability in excess of the amounts being offered by the Company as refunds to Take 5 clients. The Company is currently unable to determine the amount of any potential liability, costs or expenses (above the amounts previously offered as refunds) that may result from any lawsuits or investigations associated with the Take 5 Matter or determine whether any such issues will have any future material adverse effect on the Company’s financial position, liquidity, or results of operations. Although the Company has insurance covering certain liabilities, the Company cannot be certain that the insurance will be sufficient to cover any potential liability or expenses associated with the Take 5 Matter.
In the ordinary course of business, the Company is required to provide financial commitments in the form of surety bonds to third parties as a guarantee of its performance on and its compliance with certain obligations. If the
15
Company were to fail to perform or comply with these obligations, any draws upon surety bonds issued on its behalf would then trigger the Company's payment obligation to the surety bond issuer. The Company has outstanding surety bonds issued for its benefits of $
10. Stock-Based Compensation
The Company has issued nonqualified stock options, restricted stock units (“RSUs”), and performance restricted stock units (“PSUs”) under the Advantage Solutions Inc. 2020 Incentive Award Plan, as amended and restated (the “Plan”). The Company’s restricted stock units and performance restricted stock units, as described below, are expensed based on the fair value at the grant date.
|
Three Months Ended March 31, |
|
|||||
(in thousands) |
2025 |
|
|
2024 |
|
||
Restricted stock-based unit awards |
|
|
|
|
|
||
Other share-based awards |
|
|
|
|
|
||
Total stock-based compensation before tax |
|
|
|
|
|
||
Tax benefit |
|
( |
) |
|
|
( |
) |
Total stock-based compensation expense included in net loss |
$ |
|
|
$ |
|
||
Performance Restricted Stock Units
PSUs granted in fiscal year 2024 are subject to achievement of certain performance conditions based on measurements of the Company’s Adjusted EBITDA margin and cash earnings. The Company’s Adjusted EBITDA margin and cash earnings relative to specified targets will be measured over the fiscal years in which the award was granted, and an annual achievement percentage will be determined. In addition, the earned PSUs are subject to further adjustment depending on the Company’s performance against a specified peer group for total stockholder return during the three-year performance period. This adjustment can either put a floor or a cap on the calculation of the final PSUs value. Subject to certain termination events, these PSUs are scheduled to cliff-vest on the third-year anniversary of the date of grant and may vest from
PSUs are subject to the recipient's continued service to the Company. PSUs granted in fiscal years 2023 and 2022 are subject to achievement of certain performance conditions based on the Company’s revenues and Adjusted EBITDA targets in the respective measurement period and the recipient’s continued service to the Company. The measurement period is based on the twelve months of the respective fiscal year. The PSUs are scheduled to vest over a three-year period from the date of grant and may vest from 0% to 150% of the number of shares set forth in the table below. The number of PSUs earned shall be adjusted to be proportional to the partial performance between the Threshold, Target and Maximum as defined in the award agreements. Details for each aforementioned defined term for each grant have been provided in the table below.
The fair value of PSU grants was equal to the closing price of the Company's stock on the date of the applicable grant. The maximum potential expense if the Maximum were met for these awards has been provided in the table below.
Measurement Period |
|
Number of |
|
|
Number of |
|
|
Number of |
|
|
Weighted Average Grant Date Fair Value Per Share |
|
|
Maximum Remaining Unrecognized Compensation Expense |
|
|
Weighted-average remaining requisite service periods |
|
||||||
2024 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||
2023 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||
2022 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||
16
During the first quarter of fiscal year 2025, the Human Capital Committee determined the annual achievement percentage for PSUs granted in fiscal year 2024 to be
The following table summarizes the PSU activity for the three months ended March 31, 2025:
|
|
Performance Share Units |
|
|
Weighted Average Grant |
|
||
Outstanding at January 1, 2025 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Distributed |
|
|
( |
) |
|
$ |
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
PSU performance adjustment (1) |
|
|
|
|
$ |
|
||
Outstanding at March 31, 2025 (2) |
|
|
|
|
$ |
|
||
|
|
(1)
(2)
Restricted Stock Units
RSUs are subject to the recipient’s continued service to the Company. RSUs are generally scheduled to vest over
During the three months ended March 31, 2025, the following activities involving RSUs occurred under the Plan:
|
|
Number of RSUs |
|
|
Weighted Average Grant |
|
||
Outstanding at January 1, 2025 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Distributed |
|
|
( |
) |
|
$ |
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
Outstanding at March 31, 2025 |
|
|
|
|
$ |
|
||
As of March 31, 2025, the total remaining unrecognized compensation cost related to RSUs amounted to $
Stock Options
During the three months ended March 31, 2025, the following activities involving stock options occurred under the Plan:
17
|
|
Stock Options |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contractual Life |
|
|
Aggregate Intrinsic Value |
|
||||
Outstanding at January 1, 2025 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forfeited |
|
|
|
|
|
|
|
|
|
|
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|
||||
Cancelled/Expired |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Outstanding at March 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at March 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
As of March 31, 2025, the Company had approximately $
In April 2025, the Company granted
11. Earnings Per Share
The Company calculates earnings per share using a dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income attributable to stockholders of the Company by the weighted-average shares of common stock outstanding without the consideration for potential dilutive shares of common stock. Diluted earnings per share represents basic earnings per share adjusted to include the potentially dilutive effect of performance stock units, restricted stock units, public and private placement warrants, the employee stock purchase plan and stock options. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding and the potential dilutive shares of common stock for the period determined using the treasury stock method. During periods of net loss, diluted loss per share is equal to basic loss per share because the antidilutive effect of potential common shares is disregarded.
18
The following is a reconciliation of basic and diluted net earnings per common share:
|
|
Three Months Ended March 31, |
|
|||||
(in thousands, except share and earnings per share data) |
|
2025 |
|
|
2024 |
|
||
Basic earnings per share computation: |
|
|
|
|
|
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss from continuing operations attributable to stockholders of Advantage Solutions Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
Net income from discontinued operations, net of tax |
|
|
|
|
|
|
||
Less: net income from discontinued operations attributable to noncontrolling interest, net of tax |
|
|
|
|
|
|
||
Net income from discontinued operations attributable to stockholders of Advantage Solutions Inc. |
|
$ |
|
|
$ |
|
||
Denominator: |
|
|
|
|
|
|
||
Weighted average common shares - basic |
|
|
|
|
|
|
||
Basic loss per common share from continuing operations attributable to stockholders of Advantage Solutions Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
Basic earnings per common share from discontinued operations attributable to stockholders of Advantage Solutions Inc. |
|
$ |
|
|
$ |
|
||
Diluted earnings per share computation: |
|
|
|
|
|
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss from continuing operations attributable to stockholders of Advantage Solutions Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
Net income from discontinued operations, net of tax |
|
|
|
|
|
|
||
Less: net income from discontinued operations attributable to noncontrolling interest, net of tax |
|
|
|
|
|
|
||
Net income from discontinued operations attributable to stockholders of Advantage Solutions Inc. |
|
$ |
|
|
$ |
|
||
Denominator: |
|
|
|
|
|
|
||
Weighted average common shares - diluted |
|
|
|
|
|
|
||
Diluted loss per common share from continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted earnings per common share from discontinued operations |
|
$ |
|
|
$ |
|
||
The Company had
In accordance with the treasury stock method the weighted average shares outstanding assuming dilution include the incremental effect of stock-based awards, except when such effect would be antidilutive. Stock-based awards of
19
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:
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:
21
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 |
% |
|
|
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
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
Our exposure to foreign currency exchange rate fluctuations is primarily the result of foreign subsidiaries and foreign branches primarily domiciled in Canada. We use financial derivative instruments to hedge foreign currency exchange rate risks associated with our Canadian operations.
The assets and liabilities of our foreign subsidiaries and foreign branches, whose functional currencies are primarily Canadian dollars, are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during the period. The cumulative translation effects for subsidiaries using a functional currency other than the U.S. dollar are included in accumulated other comprehensive loss as a separate component of stockholders’ equity. We estimate that had the exchange rate in each country unfavorably changed by ten percent relative to the U.S. dollar, our consolidated loss before taxes would have decreased by approximately $0.8 million for the three months ended March 31, 2025.
Interest Rate Risk
Interest rate exposure relates primarily to the effect of interest rate changes on borrowings outstanding under the Term Loan Facility, Revolving Credit Facility and Notes.
We manage our interest rate risk through the use of derivative financial instruments. Specifically, we have entered into interest rate collar agreements to manage our exposure to potential interest rate increases that may result from fluctuations in SOFR. We do not designate these derivatives as hedges for accounting purposes, and as a result, all changes in the fair value of derivatives, used to hedge interest rates, are recorded in “Interest expense, net” in our Condensed Consolidated Statements of Operations and Comprehensive Loss.
We had interest rate collar contracts with an aggregate notional value of principal of $700.0 million as of March 31, 2025, from various financial institutions to manage our exposure to interest rate movements on variable rate credit facilities. The interest rate collar contracts will mature on April 5, 2026, 2027 and 2028. In July 2024, we entered into two interest rate collar contracts with a notional value of principal of $200.0 million each. The interest rate collar contracts are effective December 16, 2024 and will mature on April 5, 2027 and 2028. The aggregate fair value of our interest rate caps and collars represented an outstanding net liability of $0.8 million as of March 31, 2025.
Holding other variables constant, a change of one-eighth percentage point in the weighted average interest rate above the floor of 0.75% on the Term Loan Facility and Revolving Credit Facility would have resulted in an increase of $0.3 million in interest expense, net of gains from interest rate caps and collars, for the three months ended March 31, 2025.
In the future, in order to manage our interest rate risk, we may refinance our existing debt, enter into additional interest rate cap agreements or modify our existing interest rate cap agreement. However, we do not intend or expect to enter into derivative or interest rate cap transactions for speculative purposes.
ITEM 4. CONTROLS AND PROCEDURES
Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of March 31, 2025, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and (2) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of
39
disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Control Over Financial Reporting
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, we deployed the new ERP for our North America operations. As part of the implementation, we completed significant pre-implementation testing and post-implementation testing and monitoring. Furthermore, in conjunction with the ERP implementation, we modified certain existing internal controls over financial reporting and implemented new controls and procedures related to the new ERP system. While we believe that this new system will enhance its internal control over financial reporting, there are inherent risks in implementing any new system, and we will continue to evaluate these control changes as part of our control design and effectiveness throughout 2025.
These were the changes in our internal control over financial reporting during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in various legal matters that arise in the ordinary course of our business. Some of these legal matters purport or may be determined to be class and/or representative actions, or seek substantial damages or penalties. Some of these legal matters relate to disputes regarding acquisitions. In connection with certain of the below matters and other legal matters, we have accrued amounts that we believe are appropriate. There can be no assurance, however, that the below matters and other legal matters will not result in us having to make payments in excess of such accruals or that the below matters or other legal matters will not materially or adversely affect our business, financial position, results of operations, or cash flows.
Commercial Matters
We have been involved in various litigation matters and arbitrations with respect to commercial matters arising with clients, vendors and third-party sellers of businesses. We have retained outside counsel to represent us in these matters and we are vigorously defending our interests.
Employment-Related Matters
We have also been involved in various litigation, including purported class or representative actions with respect to matters arising under the U.S. Fair Labor Standards Act, California Labor Code and Private Attorneys General Act. Many involve allegations for allegedly failing to pay wages and/or overtime, failing to provide meal and rest breaks and failing to pay reporting time pay, waiting time penalties and other penalties.
Legal Matters Related to Take 5
In April 2018, the Company acquired the business of Take 5 Media Group (“Take 5”). As a result of an investigation into that business in 2019 that identified certain misconduct, the Company terminated all operations of Take 5 in July 2019 and offered refunds to clients of collected revenues attributable to the period after the Company’s acquisition. The Company refers to the foregoing as the Take 5 Matter. The Company voluntarily disclosed to the United States Attorney’s Office and the Federal Bureau of Investigation certain misconduct occurring at Take 5. The Company intends to cooperate in this and any other governmental investigations that may arise in connection with the Take 5 Matter. In October 2022, an arbitrator made a final award in favor of the Company. The Company is actively pursuing the collection of this award. The Company is currently unable to estimate if or when it will be able to collect any amounts associated with this arbitration. The Take 5 Matter may result in additional litigation against the Company, including lawsuits from clients, or governmental investigations, which may expose the Company to potential liability in excess of the amounts being offered by the Company as refunds to Take 5 clients. The Company is currently unable to determine the amount of any potential liability, costs or expenses (above the amounts previously offered as refunds) that may result from any lawsuits or investigations associated with the Take 5 Matter or determine whether any such issues
40
will have any future material adverse effect on the Company’s financial position, liquidity, or results of operations. Although the Company has insurance covering certain liabilities, the Company cannot be certain that the insurance will be sufficient to cover any potential liability or expenses associated with the Take 5 Matter.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed under Part I, Item 1A “Risk Factors” in the 2024 Annual Report, the current effects of which are discussed in more detail in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q. These risks are not the only risks that may affect us. Additional risks that we are not aware of or do not believe are material at the time of this filing may also become important factors that adversely affect our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On November 9, 2021, we announced that our board of directors authorized a share repurchase program (the “2021 Share Repurchase Program”) pursuant to which we may repurchase up to $100.0 million of our Class A common stock.
The 2021 Share Repurchase Program does not have an expiration date but provides for suspension or discontinuation at any time. The 2021 Share Repurchase Program permits the repurchase of our Class A common stock on the open market and by other means, including plans complying with Rule 10b5-1 under the Exchange Act. The timing and amount of any share repurchase is subject to prevailing market conditions, relevant securities laws and other considerations, and we are under no obligation to repurchase any specific number of shares.
During the three months ended March 31, 2025, we executed open market purchases of $0.9 million of our Class A common stock under the 2021 Share Repurchase Program. As of March 31, 2025, there remained $46.2 million of share repurchase availability under the 2021 Share Repurchase Program.
The following tables sets forth repurchases of our Class A common stock during the three months ended March 31, 2025:
Period |
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Total number of shares purchased |
|
|
Average price paid per share |
|
|
Total number of shares purchased as part of publicly announced plans |
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Approximate dollar value of shares that may yet be purchased under the plan (in thousands) |
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January 1, 2025 to January 31, 2025 |
|
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— |
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|
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— |
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— |
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$ |
47,023 |
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February 1, 2025 to February 28, 2025 |
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— |
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— |
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— |
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$ |
47,023 |
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March 1, 2025 to March 31, 2025 |
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494,442 |
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$ |
1.76 |
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12,894,517 |
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$ |
46,154 |
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the three months ended March 31, 2025, none of our directors and executive officers
41
ITEM 6. Exhibits
The following exhibits are filed with this Report:
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Incorporated by Reference |
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Exhibit No. |
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Description |
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Form |
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File No. |
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Exhibit |
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Filing Date |
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10.1# |
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8-K |
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001-38990
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10.1 |
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March 7, 2025
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10.2 |
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8-K |
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001-38990 |
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10.2 |
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March 7, 2025 |
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31.1+ |
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31.2+ |
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32.1** |
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32.2** |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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+ Filed herewith. ** Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. # Indicates management contract or compensatory plan or arrangement. |
||||||||||
***
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ADVANTAGE SOLUTIONS INC. |
||
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By: |
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/s/ David Peacock |
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David Peacock |
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Chief Executive Officer (Principal Executive Officer) |
Date: |
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May 12, 2025 |
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By: |
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/s/ Christopher Growe |
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Christopher Growe |
|
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Chief Financial Officer (Principal Financial Officer) |
Date: |
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May 12, 2025 |
43
Exhibit 31.1
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, David Peacock, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Advantage Solutions Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
May 12, 2025 |
By: |
/s/ David Peacock |
|
|
|
David Peacock |
|
|
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Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Christopher Growe, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Advantage Solutions Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
May 12, 2025 |
By: |
/s/ Christopher Growe |
|
|
|
Christopher Growe |
|
|
|
Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADDED BY
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Advantage Solutions Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2025, as filed with the Securities and Exchange Commission (the “Report”), I, David Peacock, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.
|
May 12, 2025 |
By: |
/s/ David Peacock |
|
|
|
David Peacock |
|
|
|
Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADDED BY
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Advantage Solutions Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2025, as filed with the Securities and Exchange Commission (the “Report”), I, Christopher Growe, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.
|
May 12, 2025 |
By: |
/s/ Christopher Growe |
|
|
|
Christopher Growe |
|
|
|
Chief Financial Officer (Principal Financial Officer) |