Advantage Solutions Inc. (NASDAQ: ADV) (“Advantage,” “Advantage
Solutions,” the “Company,” “we” or “our”), a leading provider of
outsourced sales and marketing services to consumer goods
manufacturers and retailers, today reported financial results for
its first quarter ended March 31, 2023. Revenues grew 10.6%
year-over-year, up 12.1% excluding foreign exchange, to reach $1.0
billion, and EBITDA reached $92.1 million, down 4.8% year-over
year. The quarter came in ahead of our internal expectations driven
by a stronger revenue performance.
“It has been a busy and productive first quarter at
Advantage,” said Advantage Solutions CEO, Dave Peacock. “In my
first 90 days, we have built out our executive team with
experienced leaders from best-in-class consumer and retail
companies, and now have the foundation in place to simplify our
core offerings while simultaneously building the business for the
future. With each day, I grow increasingly confident in Advantage’s
ability to win with clients and customers.”
Peacock continued, “Although the macro environment
remains challenging, our year-over-year topline growth of
approximately 11% in the first quarter represents continued
expansion in our must-have services as well as success in pricing
realization as we navigate the higher cost environment hand-in-hand
with our clients and customers. From a capital allocation
perspective, we remain committed to maximizing returns for our
equity holders, including deleveraging our balance sheet and
investing behind our core business offerings, as reinforced by our
voluntary term loan repayment made in the quarter and our
margin-enhancing divestiture subsequent to quarter-end. I’m
energized by the strategic capabilities and collaboration across
our executive leadership team as we continue building on the
momentum and growth in our business to create even more value for
our stakeholders.”
First Quarter 2023 Highlights |
|
Comparison of the Three Months Ended March 31, 2023 and
2022 |
Revenues |
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Change |
|
(amounts in
thousands) |
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
Sales |
$ |
613,344 |
|
|
$ |
591,969 |
|
|
$ |
21,375 |
|
|
|
3.6 |
% |
Marketing |
|
398,639 |
|
|
|
322,839 |
|
|
|
75,800 |
|
|
|
23.5 |
% |
Total revenues |
$ |
1,011,983 |
|
|
$ |
914,808 |
|
|
$ |
97,175 |
|
|
|
10.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA and Adjusted EBITDA by
Segment |
|
Three Months Ended March 31, |
|
|
Change |
|
(amounts in
thousands) |
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
Sales |
$ |
65,839 |
|
|
$ |
68,233 |
|
|
$ |
(2,394 |
) |
|
|
(3.5 |
)% |
Marketing |
|
26,231 |
|
|
|
28,506 |
|
|
|
(2,275 |
) |
|
|
(8.0 |
)% |
Total Adjusted EBITDA |
$ |
92,070 |
|
|
$ |
96,739 |
|
|
$ |
(4,669 |
) |
|
|
(4.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Revenues were $1,012.0 million for the first quarter of 2023,
representing an increase of $97.2 million, or 10.6% from the first
quarter 2022 revenues of $914.8 million. Excluding unfavorable
foreign exchange rates, revenues increased by $110.3 million, or
12.1%.
- Operating loss of $8.3 million for the first quarter of 2023,
representing a decrease of $31.3 million from the first quarter
2022 operating income of $23.0 million.
- Net loss of $47.7 million for the first quarter of 2023,
representing a decrease of $65.2 million from the first quarter
2022 net income of $17.5 million.
- Adjusted EBITDA was $92.1 million for the first quarter of
2023, representing a decrease of $4.7 million, or 4.8%, from the
first quarter 2022 Adjusted EBITDA of $96.7 million.
The year-over-year increase in revenues was driven by $75.8
million of growth in the marketing segment (an increase of 23% year
over year) and $21.4 million of growth in the sales segment (an
increase of 4% year over year). First quarter growth in the
marketing segment was driven primarily by the continued recovery of
our in-store sampling and demonstration services, partially offset
by softness in our digital services. The first quarter growth in
the sales segment was driven by an increase in retail merchandising
services and our European joint venture.
The $8.3 million operating loss for the first quarter of 2023
was primarily due to a non-cash loss on disposal of assets and
assets held for sale and an increase in reorganization charges
related to the transition of certain executive officers.
The year-over-year decrease in net income was driven by the
decline in operating income and an increase in interest
expense.
The year-over-year decline in Adjusted EBITDA was primarily due
to inflationary cost pressures, the flow-through of softness in
digital services, and ongoing mix shift dynamics across the
enterprise.
Balance Sheet Highlights
As of March 31, 2023, the Company’s cash and cash equivalents
was $149.1 million, total debt was $2,074.2 million and Net Debt
was $1,925.1 million. The debt capitalization consists primarily of
the $1,293.2 million First Lien Term Loan and $775.0 million of
senior secured notes as of March 31, 2023.
During the quarter, Advantage voluntarily repurchased
approximately $2 million of its First Lien Term Loan at an
attractive discount, resulting in a net leverage ratio of
approximately 4.5x LTM Adjusted EBITDA as of March 31, 2023.
Furthermore, subsequent to quarter-end, the Company executed a
favorable collar on an additional $300 million of First Lien Term
Loan, resulting in approximately 84% of the Company’s debt being
hedged or at a fixed interest rate.
Fiscal Year 2023 Outlook
The Company is reiterating its guidance for fiscal 2023 with
Adjusted EBITDA anticipated to range from $400 million to $420
million.
Conference Call Details
Advantage will host a conference call at 8:30 am ET on May 10,
2023 to discuss its first quarter 2023 financial performance and
business outlook. To participate, please dial (844) 825-9789 within
the United States or (412) 317-5180 outside the United States
approximately 10 minutes before the scheduled start of the call.
The conference ID for the call is 10177677. The conference call
will also be accessible live via audio broadcast on the Investor
Relations section of the Advantage website at
ir.advantagesolutions.net.
A replay of the conference call will be available online on the
investor section of the Advantage website. In addition, an audio
replay of the call will be available for one week following the
call and can be accessed by dialing (844) 512-2921 within the
United States or (412) 317-6671 outside the United States. The
replay ID is 10177677.
About Advantage Solutions
Advantage Solutions (NASDAQ: ADV) is a leading
provider of outsourced sales and marketing solutions to consumer
goods companies and retailers. Our data- and technology-driven
services — which include headquarter sales, retail merchandising,
in-store and online sampling, digital commerce, omnichannel
marketing, retail media and others — help brands and retailers of
all sizes get products into the hands of consumers, wherever they
shop. As a trusted partner and problem solver, we help our clients
sell more while spending less. Headquartered in Irvine,
California, we have offices throughout North America and strategic
investments in select markets throughout Africa, Asia, Australia
and Europe through which we serve the global needs of
multinational, regional and local manufacturers. For more
information, please visit advantagesolutions.net.
Forward-Looking Statements
Certain statements in this press release may be
considered forward-looking statements within the meaning of the
federal securities laws, including statements regarding the
expected future performance of Advantage's business and projected
financial results. Forward-looking statements generally relate to
future events or Advantage’s future financial or operating
performance. These forward-looking statements generally are
identified by the words “may”, “should”, “expect”, “intend”,
“will”, “would”, “could”, “estimate”, “anticipate”, “believe”,
“predict”, “confident”, “potential” or “continue”, or the negatives
of these terms or variations of them or similar terminology. Such
forward-looking statements are predictions, projections and other
statements about future events that are based on current
expectations and assumptions and, as a result, are subject to
risks, uncertainties and other factors which could cause actual
results to differ materially from those expressed or implied by
such forward looking statements.
These forward-looking statements are based upon
estimates and assumptions that, while considered reasonable by
Advantage and its management at the time of such statements, are
inherently uncertain. Factors that may cause actual results to
differ materially from current expectations include, but are not
limited to, market-driven wage changes or changes to labor laws or
wage or job classification regulations, including minimum wage; the
COVID-19 pandemic and the measures taken in response thereto; the
availability, acceptance, administration and effectiveness of any
COVID-19 vaccine; Advantage’s ability to continue to generate
significant operating cash flow; client procurement strategies and
consolidation of Advantage’s clients’ industries creating pressure
on the nature and pricing of its services; consumer goods
manufacturers and retailers reviewing and changing their sales,
retail, marketing and technology programs and relationships;
Advantage’s ability to successfully develop and maintain relevant
omni-channel services for our clients in an evolving industry and
to otherwise adapt to significant technological change; Advantage’s
ability to maintain proper and effective internal control over
financial reporting in the future; potential and actual harms to
Advantage’s business arising from the Take 5 Matter; Advantage’s
substantial indebtedness and our ability to refinance at favorable
rates; and other risks and uncertainties set forth in the section
titled “Risk Factors” in the Annual Report on Form 10-K filed by
the Company with the Securities and Exchange Commission (the “SEC”)
on March 1, 2023, and in its other filings made from time to time
with the SEC. These filings identify and address other important
risks and uncertainties that could cause actual events and results
to differ materially from those contained in the forward-looking
statements. Forward-looking statements speak only as of the date
they are made. Readers are cautioned not to put undue reliance on
forward-looking statements, and Advantage assumes no obligation and
does not intend to update or revise these forward-looking
statements, whether as a result of new information, future events
or otherwise, except as required by law.
Non-GAAP Financial Measures and Related
Information
This press release includes certain financial
measures not presented in accordance with generally accepted
accounting principles (“GAAP”), including Adjusted EBITDA and Net
Debt. These are not measures of financial performance calculated in
accordance with GAAP and may exclude items that are significant in
understanding and assessing Advantage’s financial results.
Therefore, the measures are in addition to, and not a substitute
for or superior to, measures of financial performance prepared in
accordance with GAAP, and should not be considered in isolation or
as an alternative to net income, cash flows from operations or
other measures of profitability, liquidity or performance under
GAAP. You should be aware that Advantage’s presentation of these
measures may not be comparable to similarly titled measures used by
other companies. Reconciliations of historical non-GAAP measures to
their most directly comparable GAAP counterparts are included
below.
Advantage believes these non-GAAP measures
provide useful information to management and investors regarding
certain financial and business trends relating to Advantage’s
financial condition and results of operations. Advantage believes
that the use of Adjusted EBITDA and Net Debt provides an additional
tool for investors to use in evaluating ongoing operating results
and trends and in comparing Advantage’s financial measures with
other similar companies, many of which present similar non-GAAP
financial measures to investors. 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 Advantage’s non-GAAP measures may not be
directly comparable to similarly titled measures of other
companies.
Adjusted EBITDA means net (loss) income before
(i) interest expense, net, (ii) provision for (benefit from) income
taxes, (iii) depreciation, (iv) impairment of goodwill and
indefinite-lived assets, (v) amortization of intangible assets,
(vi) equity-based compensation of Karman Topco L.P., (vii) changes
in fair value of warrant liability, (viii) stock based compensation
expense, (ix) fair value adjustments of contingent consideration
related to acquisitions, (x) acquisition-related expenses, (xi)
loss on disposal of assets (xii) costs associated with COVID-19,
net of benefits received, (xiii) EBITDA for economic interests in
investments, (xiv) reorganization and restructuring expenses, (xv)
litigation expenses, (xvi) costs associated with the Take 5 Matter
and (xvii) other adjustments that management believes are helpful
in evaluating our operating performance.
Net Debt represents the sum of current portion
of long-term debt and long-term debt, less cash and cash
equivalents and debt issuance costs. With respect to Net Debt, cash
and cash equivalents are subtracted from the GAAP measure, total
debt, because they could be used to reduce the debt obligations. We
present Net Debt because we believe this non-GAAP measure provides
useful information to management and investors regarding certain
financial and business trends relating to the Company’s financial
condition and to evaluate changes to the Company's capital
structure and credit quality assessment.
Due to rounding, numbers presented throughout
this document may not add up precisely to the totals provided and
percentages may not precisely reflect the absolute figures.
This press release also includes certain
estimates and projections of Adjusted EBITDA, including with
respect to expected fiscal 2023 results. Due to the high
variability and difficulty in making accurate estimates and
projections of some of the information excluded from Adjusted
EBITDA, together with some of the excluded information not being
ascertainable or accessible, Advantage is unable to quantify
certain amounts that would be required to be included in the most
directly comparable GAAP financial measures without unreasonable
effort. Consequently, no disclosure of estimated or projected
comparable GAAP measures is included and no reconciliation of such
forward-looking non-GAAP financial measures is included.
Advantage Solutions Inc.Condensed
Consolidated Balance
Sheets(Unaudited) |
|
March 31, |
|
|
December 31, |
|
(in thousands, except
share data) |
2023 |
|
|
2022 |
|
ASSETS |
|
|
|
|
|
Current assets |
|
|
|
|
|
Cash and cash equivalents |
$ |
149,088 |
|
|
$ |
120,715 |
|
Restricted cash |
|
19,675 |
|
|
|
17,817 |
|
Accounts receivable, net of allowance for expected credit losses of
$26,322 and $22,752, respectively |
|
791,767 |
|
|
|
869,000 |
|
Prepaid expenses and other current assets |
|
133,254 |
|
|
|
149,476 |
|
Total current assets |
|
1,093,784 |
|
|
|
1,157,008 |
|
Property and equipment,
net |
|
71,445 |
|
|
|
70,898 |
|
Goodwill |
|
889,626 |
|
|
|
887,949 |
|
Other intangible assets,
net |
|
1,840,100 |
|
|
|
1,897,503 |
|
Investments in unconsolidated
affiliates |
|
130,517 |
|
|
|
129,491 |
|
Other assets |
|
112,652 |
|
|
|
119,522 |
|
Total assets |
$ |
4,138,124 |
|
|
$ |
4,262,371 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Current portion of long-term debt |
$ |
15,092 |
|
|
$ |
13,991 |
|
Accounts payable |
|
206,926 |
|
|
|
261,464 |
|
Accrued compensation and benefits |
|
100,035 |
|
|
|
154,744 |
|
Other accrued expenses |
|
160,739 |
|
|
|
133,173 |
|
Deferred revenues |
|
48,215 |
|
|
|
37,329 |
|
Total current liabilities |
|
531,007 |
|
|
|
600,701 |
|
Long-term debt, net of current
portion |
|
2,018,807 |
|
|
|
2,022,819 |
|
Deferred income tax
liabilities |
|
281,666 |
|
|
|
297,874 |
|
Other long-term
liabilities |
|
112,730 |
|
|
|
111,507 |
|
Total liabilities |
|
2,944,210 |
|
|
|
3,032,901 |
|
|
|
|
|
|
|
Redeemable noncontrolling
interest |
|
3,891 |
|
|
|
3,746 |
|
|
|
|
|
|
|
Equity attributable to
stockholders of Advantage Solutions Inc. |
|
|
|
|
|
Common stock, $0.0001 par value, 3,290,000,000 shares authorized;
323,555,298 and 319,690,300 shares issued and outstanding as of
March 31, 2023 and December 31, 2022, respectively |
|
32 |
|
|
|
32 |
|
Additional paid in capital |
|
3,417,561 |
|
|
|
3,408,836 |
|
Accumulated deficit |
|
(2,294,696 |
) |
|
|
(2,247,109 |
) |
Loans to Karman Topco L.P. |
|
(6,369 |
) |
|
|
(6,363 |
) |
Accumulated other comprehensive loss |
|
(17,325 |
) |
|
|
(18,849 |
) |
Treasury stock, at cost; 1,610,014 shares as of March 31, 2023 and
December 31, 2022, respectively |
|
(12,567 |
) |
|
|
(12,567 |
) |
Total equity attributable to stockholders of Advantage Solutions
Inc. |
|
1,086,636 |
|
|
|
1,123,980 |
|
Nonredeemable noncontrolling
interest |
|
103,387 |
|
|
|
101,744 |
|
Total stockholders’ equity |
|
1,190,023 |
|
|
|
1,225,724 |
|
Total liabilities, redeemable noncontrolling interest, and
stockholders’ equity |
$ |
4,138,124 |
|
|
$ |
4,262,371 |
|
|
|
|
|
|
|
|
|
Advantage Solutions Inc.Condensed
Consolidated Statements of Operations and Comprehensive (Loss)
Income(Unaudited) |
|
Three Months Ended March 31, |
|
(in thousands, except
share and per share data) |
2023 |
|
|
2022 |
|
Revenues |
$ |
1,011,983 |
|
|
$ |
914,808 |
|
Cost of revenues (exclusive of
depreciation and amortization shown separately below) |
|
888,040 |
|
|
|
785,943 |
|
Selling, general, and
administrative expenses |
|
75,095 |
|
|
|
48,073 |
|
Depreciation and
amortization |
|
57,104 |
|
|
|
57,768 |
|
Total operating expenses |
|
1,020,239 |
|
|
|
891,784 |
|
Operating (loss) income |
|
(8,256 |
) |
|
|
23,024 |
|
Other (income) expenses: |
|
|
|
|
|
Change in fair value of
warrant liability |
|
(73 |
) |
|
|
(15,442 |
) |
Interest expense, net |
|
47,191 |
|
|
|
11,883 |
|
Total other expenses (income) |
|
47,118 |
|
|
|
(3,559 |
) |
(Loss) income before income
taxes |
|
(55,374 |
) |
|
|
26,583 |
|
(Benefit from) provision for
income taxes |
|
(7,696 |
) |
|
|
9,049 |
|
Net (loss) income |
|
(47,678 |
) |
|
|
17,534 |
|
Less: net loss attributable to
noncontrolling interest |
|
(91 |
) |
|
|
(1,431 |
) |
Net (loss) income attributable
to stockholders of Advantage Solutions Inc. |
|
(47,587 |
) |
|
|
18,965 |
|
Other comprehensive income,
net of tax: |
|
|
|
|
|
Foreign currency translation adjustments |
|
1,524 |
|
|
|
1,389 |
|
Total comprehensive (loss)
income attributable to stockholders of Advantage Solutions
Inc. |
$ |
(46,063 |
) |
|
$ |
20,354 |
|
Net (loss) income per common
share: |
|
|
|
|
|
Basic |
$ |
(0.15 |
) |
|
$ |
0.06 |
|
Diluted |
$ |
(0.15 |
) |
|
$ |
0.06 |
|
Weighted-average number of
common shares: |
|
|
|
|
|
Basic |
|
321,135,117 |
|
|
|
317,784,656 |
|
Diluted |
|
321,135,117 |
|
|
|
318,721,082 |
|
|
|
|
|
|
|
|
|
Advantage Solutions Inc.Reconciliation of
Net Income (Loss) to Adjusted
EBITDA(Unaudited) |
|
Three Months Ended March 31, |
|
|
2023 |
|
|
2022 |
|
(in
thousands) |
|
|
|
|
|
Net (loss) income |
$ |
(47,678 |
) |
|
$ |
17,534 |
|
Add: |
|
|
|
|
|
Interest
expense, net |
|
47,191 |
|
|
|
11,883 |
|
(Benefit
from) provision for income taxes |
|
(7,696 |
) |
|
|
9,049 |
|
Depreciation and amortization |
|
57,104 |
|
|
|
57,768 |
|
Equity-based compensation of Karman Topco L.P.(a) |
|
(2,269 |
) |
|
|
(2,795 |
) |
Change
in fair value of warrant liability |
|
(73 |
) |
|
|
(15,442 |
) |
Stock-based compensation expense(b) |
|
11,210 |
|
|
|
7,771 |
|
Fair
value adjustments related to contingent consideration related to
acquisitions(c) |
|
4,292 |
|
|
|
2,134 |
|
Acquisition-related expenses(d) |
|
2,432 |
|
|
|
6,803 |
|
Loss on
disposal of assets(e) |
|
16,497 |
|
|
|
2,782 |
|
EBITDA
for economic interests in investments(f) |
|
(1,185 |
) |
|
|
(4,052 |
) |
Reorganization and restructuring expenses(g) |
|
11,148 |
|
|
|
643 |
|
Costs
associated with COVID-19, net of benefits received(h) |
|
1,017 |
|
|
|
1,574 |
|
Costs
associated with the Take 5 Matter(i) |
|
80 |
|
|
|
1,087 |
|
Adjusted
EBITDA |
$ |
92,070 |
|
|
$ |
96,739 |
|
|
|
|
|
|
|
|
|
(a) Represents
expenses related to (i) equity-based compensation expense
associated with grants of Common Series D Units of Karman Topco
L.P. (“Topco”) made to one of the equity holders of Topco and (ii)
equity-based compensation expense associated with the Common Series
C Units of Topco. (b) Represents non-cash
compensation expense related to the 2020 Incentive Award Plan and
the 2020 Employee Stock Purchase Plan.
(c) Represents adjustments to the estimated fair
value of our contingent consideration liabilities related to our
acquisitions.(d) Represents fees and costs
associated with activities related to our acquisitions and
reorganization activities including professional fees, due
diligence and integration
activities.(e) Represents losses on disposal of
assets related to divestitures and losses on a sale of businesses
and classification of assets held for sale, less cost to
sell.(f) 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.(g) Represents fees and costs
associated with various internal reorganization activities,
including professional fees, lease exit costs, severance, and
nonrecurring compensation costs. (h) Represents
(i) costs related to implementation of strategies for workplace
safety in response to COVID-19, including additional sick pay for
front-line associates and personal protective equipment; and (ii)
benefits received from government grants for COVID-19
relief.(i) Represents costs associated with the
Take 5 Matter, primarily, professional fees and other related
costs.
Advantage Solutions Inc.Reconciliation of Total
Debt to Net Debt(Unaudited) |
(in
millions) |
March 31, 2023 |
Current portion of long-term debt |
$ |
15.1 |
|
Long-term debt, net of current
portion |
|
2,018.8 |
|
Less: Debt issuance costs |
|
(40.3 |
) |
Total Debt |
|
2,074.2 |
|
Less: Cash and cash
equivalents |
|
149.1 |
|
Total Net Debt |
$ |
1,925.1 |
|
|
|
|
|
Contacts: Sean
Choksiinvestorrelations@advantagesolutions.net
Advantage Solutions (NASDAQ:ADV)
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