Advantage Solutions(ADV) - 2023 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive (loss) income, statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's accounting policies, significant transactions, and financial instrument valuations Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :-------------------- | :----------- | :----------- | | Total Assets | $4,057,511 | $4,262,371 | | Total Liabilities | $2,877,420 | $3,032,901 | | Total Stockholders' Equity | $1,176,300 | $1,225,724 | - Total assets decreased by $204.86 million, and total liabilities decreased by $155.48 million from December 31, 2022, to September 30, 2023[5][6] Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income This section details the company's financial performance, including revenues, operating income, net income or loss, and earnings per share over specified periods | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenues | $1,096,059 | $1,051,095 | $3,145,097 | $2,946,979 | | Operating Income | $15,983 | $46,842 | $29,998 | $98,132 | | Net (Loss) Income | $(22,582) | $23,227 | $(78,106) | $44,437 | | Basic (Loss) Earnings Per Common Share | $(0.07) | $0.07 | $(0.25) | $0.14 | | Diluted (Loss) Earnings Per Common Share | $(0.07) | $0.07 | $(0.25) | $0.14 | - For the three months ended September 30, 2023, revenues increased by 4.3% YoY, but operating income decreased by 65.9% YoY, leading to a net loss of $22.6 million compared to a net income of $23.2 million in the prior year[9] - For the nine months ended September 30, 2023, revenues increased by 6.7% YoY, but the company reported a net loss of $78.1 million, a significant decline from the net income of $44.4 million in the same period last year[9] Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity, including total stockholders' equity, accumulated deficit, and additional paid-in capital over time | Metric (in thousands) | Balance at Sep 30, 2023 | Balance at Dec 31, 2022 | | :-------------------- | :---------------------- | :---------------------- | | Total Stockholders' Equity | $1,176,300 | $1,225,724 | | Accumulated Deficit | $(2,327,796) | $(2,247,109) | | Additional Paid-in Capital | $3,438,342 | $3,408,836 | - Total stockholders' equity decreased by $49.424 million from December 31, 2022, to September 30, 2023, primarily due to an increase in accumulated deficit[6][11] Condensed Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities, highlighting changes in cash and cash equivalents | Metric (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | $180,712 | $81,950 | | Net Cash Used in Investing Activities | $(15,490) | $(103,062) | | Net Cash Used in Financing Activities | $(114,773) | $(32,920) | | Net Change in Cash, Cash Equivalents and Restricted Cash | $49,087 | $(66,343) | - Net cash provided by operating activities significantly increased to $180.7 million for the nine months ended September 30, 2023, from $82.0 million in the prior year, driven by improved working capital management[16][175] - Net cash used in investing activities decreased substantially from $103.1 million in 2022 to $15.5 million in 2023, primarily due to fewer business acquisitions[16][176] - Net cash used in financing activities increased to $114.8 million in 2023 from $32.9 million in 2022, largely due to repurchases of Term Loan Facility debt[16][177] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies, significant transactions, and financial instrument valuations supporting the consolidated financial statements 1. Organization and Significant Accounting Policies The company provides outsourced solutions to consumer goods companies and retailers, with its Class A common stock and warrants listed on Nasdaq. Revenue is recognized when control of services is transferred to clients, primarily through commissions, fee-for-service, or cost-plus arrangements across its sales and marketing segments - The Company's Class A common stock (ADV) and warrants (ADVWW) are listed on the Nasdaq Global Select Market[19] - Revenue recognition is based on transferring control of promised goods or services to clients, with performance obligations satisfied over time[22] Disaggregated Revenues (in thousands) | Disaggregated Revenues (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Sales brand-centric services | $352,197 | $343,478 | $1,033,629 | $1,005,707 | | Sales retail-centric services | $276,349 | $302,768 | $808,089 | $836,640 | | Total sales revenues | $628,546 | $646,246 | $1,841,718 | $1,842,347 | | Marketing brand-centric services | $137,026 | $143,241 | $395,770 | $393,155 | | Marketing retail-centric services | $330,487 | $261,608 | $907,609 | $711,477 | | Total marketing revenues | $467,513 | $404,849 | $1,303,379 | $1,104,632 | | Total revenues | $1,096,059 | $1,051,095 | $3,145,097 | $2,946,979 | 2. Divestitures and Acquisitions In the nine months ended September 30, 2023, the company recognized a $17.5 million loss on the sale of businesses, receiving $12.8 million in proceeds. In the prior year, the company acquired four businesses for an aggregate purchase price of $75.5 million, including cash, contingent consideration, and holdback amounts, resulting in $56.1 million in goodwill - The Company recognized a $17.5 million loss on the sale of businesses during the nine months ended September 30, 2023, receiving $12.8 million in proceeds[27] - In the nine months ended September 30, 2022, the Company acquired four businesses (two sales, two marketing) for $75.5 million, including $74.1 million in cash[28][29] - These 2022 acquisitions resulted in $56.1 million in goodwill, representing value for assembled workforce, geographic presence, and expertise[30][32] 3. Goodwill and Intangible Assets Goodwill decreased slightly to $886.8 million as of September 30, 2023, from $887.9 million at December 31, 2022, primarily due to divestitures and foreign exchange effects. The company's total other intangible assets, including client relationships and trade names, were $1.74 billion as of September 30, 2023 | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :-------------------- | :----------- | :----------- | | Goodwill | $886,825 | $887,949 | | Total Other Intangible Assets | $1,740,656 | $1,897,503 | - Goodwill decreased by $1.124 million during the nine months ended September 30, 2023, primarily due to divestitures ($1.664 million) and foreign exchange translation effects ($0.190 million gain), partially offset by measurement period adjustments ($0.350 million)[37] - Amortization of intangible assets was $49.2 million and $148.5 million for the three and nine months ended September 30, 2023, respectively[41] 4. Debt Total long-term debt decreased to $1.96 billion as of September 30, 2023, from $2.08 billion at December 31, 2022, primarily due to voluntary repurchases of Term Loan Facility debt. The company was in compliance with all debt covenants and had no borrowings under its Revolving Credit Facility | Debt Type (in thousands) | Sep 30, 2023 | Dec 31, 2022 | | :----------------------- | :----------- | :----------- | | Term Loan Facility | $1,177,367 | $1,298,500 | | Notes | $775,000 | $775,000 | | Government loans for COVID-19 relief | $5,051 | $4,480 | | Other | $950 | $1,207 | | Total Long-Term Debt | $1,958,368 | $2,079,187 | - The Company voluntarily repurchased $56.8 million and $111.2 million principal amount of its Term Loan Facility during the three and nine months ended September 30, 2023, respectively, recognizing a $5.2 million gain for the nine-month period[45] - As of September 30, 2023, the Company had no borrowings under its $500.0 million Revolving Credit Facility and was in compliance with all debt covenants[44][45] 5. Fair Value of Financial Instruments The company measures financial instruments at fair value using a three-tier hierarchy. As of September 30, 2023, derivative financial instruments (interest rate caps and collars) had a fair value of $39.3 million (Level 2), while contingent consideration liabilities were $24.2 million (Level 3). The company recorded a $12.6 million gain from derivative instruments for the nine months ended September 30, 2023 | Financial Instrument (in thousands) | Sep 30, 2023 Fair Value | Dec 31, 2022 Fair Value | | :---------------------------------- | :---------------------- | :---------------------- | | Derivative financial instruments | $39,273 | $47,493 | | Warrant liability | $1,540 | $953 | | Contingent consideration liabilities | $24,241 | $20,334 | - The Company had interest rate cap and collar contracts with an aggregate notional value of $950.0 million as of September 30, 2023, to manage interest rate risk[51] - A gain of $12.6 million was recorded for the nine months ended September 30, 2023, related to changes in the fair value of derivative instruments[54] - The maximum potential payment for contingent consideration liabilities was $76.1 million as of September 30, 2023[55] 6. Related Party Transactions The company engaged in transactions with related parties, including clients where company officers or directors hold board positions. Revenues from such clients totaled $5.2 million for the three months and $3.2 million for the nine months ended September 30, 2023. Additionally, revenues from a parent company of an unconsolidated affiliate were $6.9 million and $15.2 million for the three and nine months, respectively - Revenues from a client where a company officer serves on the board were $1.2 million for the three months and $3.2 million for the nine months ended September 30, 2023[62] - Revenues from a client where a company director serves as an officer were $4.0 million for the three months ended September 30, 2023[62] - Revenues from a parent company of an unconsolidated affiliate were $6.9 million and $15.2 million for the three and nine months ended September 30, 2023, respectively[63] 7. Income Taxes The effective tax rate for the three months ended September 30, 2023, was 16.1% (benefit), compared to 4.7% (provision) in 2022, primarily due to a pre-tax loss in 2023. For the nine months, the effective tax rate was 13.7% (benefit) in 2023 versus 20.6% (provision) in 2022, influenced by projected book income/loss differences and stock-based compensation shortfalls | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Effective Tax Rate | 16.1% (Benefit) | 4.7% (Provision) | 13.7% (Benefit) | 20.6% (Provision) | - The shift from tax provision to benefit for both periods is mainly due to the company reporting a pre-tax loss in 2023 compared to pre-tax income in 2022[64] 8. Segments The company operates in two reportable segments: sales and marketing. The sales segment serves as a strategic intermediary for consumer goods manufacturers and retailers, while the marketing segment develops and executes marketing programs. Performance is evaluated based on revenues and operating (loss) income Segment Revenues (in thousands) | Segment (in thousands) | Three Months Ended Sep 30, 2023 Revenues | Three Months Ended Sep 30, 2022 Revenues | Nine Months Ended Sep 30, 2023 Revenues | Nine Months Ended Sep 30, 2022 Revenues | | :--------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Sales | $628,546 | $646,246 | $1,841,718 | $1,842,347 | | Marketing | $467,513 | $404,849 | $1,303,379 | $1,104,632 | | Total | $1,096,059 | $1,051,095 | $3,145,097 | $2,946,979 | Segment Operating Income (in thousands) | Segment (in thousands) | Three Months Ended Sep 30, 2023 Operating Income | Three Months Ended Sep 30, 2022 Operating Income | Nine Months Ended Sep 30, 2023 Operating Income | Nine Months Ended Sep 30, 2022 Operating Income | | :--------------------- | :----------------------------------------------- | :----------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Sales | $5,995 | $31,765 | $8,972 | $65,915 | | Marketing | $9,988 | $15,077 | $21,026 | $32,217 | | Total | $15,983 | $46,842 | $29,998 | $98,132 | - Sales segment revenues decreased by 2.7% for the three months ended September 30, 2023, while marketing segment revenues increased by 15.5% for the same period[67] - Operating income for the sales segment decreased significantly by 81.1% for the three months ended September 30, 2023, and by 86.4% for the nine months ended September 30, 2023, primarily due to decreased revenues and increased internal reorganization costs[67][68][136][153] 9. Commitments and Contingencies The company is involved in various legal matters, including class actions related to labor codes and commercial disputes. A significant ongoing issue is the 'Take 5 Matter,' involving misconduct at an acquired business, which led to termination of operations and client refunds. The company received $1.7 million in insurance proceeds in June 2023 related to an arbitration dispute for this matter - The Company is involved in various legal matters, including class/representative actions under the California Labor Code and Private Attorneys General Act, and commercial disputes[69] - The 'Take 5 Matter' involves misconduct at an acquired business, leading to termination of operations and client refunds; the company received $1.7 million in insurance proceeds in June 2023 related to an arbitration dispute[69] 10. Stock-Based Compensation The company recognized $7.6 million and $22.1 million in total share-based compensation expense (net of tax) for the three and nine months ended September 30, 2023, respectively. This includes awards under Performance Restricted Stock Units (PSUs), Restricted Stock Units (RSUs), and Stock Options, with PSUs vesting based on revenue and Adjusted EBITDA targets, and RSUs generally vesting over three years | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total Share-Based Compensation before tax | $10,074 | $6,704 | $28,843 | $27,018 | | Total Share-Based Compensation expense included in net income | $7,642 | $5,247 | $22,114 | $21,032 | - As of September 30, 2023, the total remaining unrecognized compensation cost for RSUs was $57.4 million, expected to be amortized over 2.8 years[80] - The company had approximately $7.1 million of total unrecognized compensation expense related to stock options as of September 30, 2023, to be recognized over 3.8 years[85] 11. Earnings Per Share Basic and diluted loss per common share were $(0.07) for the three months and $(0.25) for the nine months ended September 30, 2023. During periods of net loss, diluted loss per share equals basic loss per share as potential common shares are antidilutive | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic (Loss) Earnings Per Common Share | $(0.07) | $0.07 | $(0.25) | $0.14 | | Diluted (Loss) Earnings Per Common Share | $(0.07) | $0.07 | $(0.25) | $0.14 | - The company had 18,578,321 warrants outstanding, which were excluded from diluted EPS calculation as the market price did not exceed the exercise price[88] - Stock-based awards (8.7 million for three months, 4.0 million for nine months) and PSUs (7.3 million shares) were excluded from diluted EPS due to their antidilutive effect during net loss periods[90] 12. Subsequent Events In October 2023, the company entered into an agreement to sell a business unit within its sales segment for $10.0 million in cash, subject to working capital and performance adjustments. This transaction did not meet the criteria for held-for-sale classification as of September 30, 2023 - In October 2023, the Company agreed to sell a sales segment business unit for $10.0 million cash, subject to adjustments[91] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key performance drivers, the impact of the COVID-19 pandemic, and factors affecting financial reporting. It also details the company's liquidity, capital resources, and non-GAAP financial measures like Adjusted Net Income and Adjusted EBITDA Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially - The report contains forward-looking statements based on current expectations, estimates, forecasts, and projections, which involve risks and uncertainties that could cause actual outcomes to differ materially[94] Executive Overview This section provides a high-level summary of the company's business model, segment performance, and key financial metrics for the reporting periods - The Company is a leading business solutions provider to consumer goods manufacturers and retailers, offering essential sales and marketing services[95] - The sales segment generated approximately 58.6% of total revenues for the nine months ended September 30, 2023, providing headquarter sales representation and in-store merchandising[96] - The marketing segment generated approximately 41.4% of total revenues for the nine months ended September 30, 2023, focusing on retail experiential business (in-store sampling) and specialized agency services[97] Key Financial Metrics (in millions) | Metric (in millions) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues | $1,096.1 | $1,051.1 | $3,145.1 | $2,947.0 | | Operating Income | $16.0 | $46.8 | $30.0 | $98.1 | | Net Loss | $(22.6) | $23.2 (Net Income) | $(78.1) | $44.4 (Net Income) | | Adjusted Net Income | $37.9 | $62.7 | $88.2 | $152.5 | | Adjusted EBITDA | $113.1 | $118.3 | $309.4 | $323.3 | - The company's financial performance for the three and nine months ended September 30, 2023, showed revenue growth but significant decreases in operating income, net income (shifting to net loss), Adjusted Net Income, and Adjusted EBITDA compared to the prior year[100] Results of Operations for the Three and Nine Months Ended September 30, 2023 and 2022 This section analyzes the company's financial performance, comparing revenues, operating income, and net income for the three and nine months ended September 30, 2023, against the prior year Comparison of the Three Months Ended September 30, 2023 and 2022 Total revenues increased by 4.3% to $1,096.1 million, with organic revenues up 5.8%. Sales segment revenues decreased by 2.7% due to a client exit, while marketing segment revenues increased by 15.5% driven by in-store sampling. Operating income decreased by 65.9% to $16.0 million, primarily due to increased internal reorganization costs and higher interest expense, leading to a net loss of $22.6 million - Total revenues increased by $45.0 million (4.3%) to $1,096.1 million, with organic revenues increasing by 5.8% excluding divestitures, acquisitions, and foreign exchange impacts[129] - Sales segment revenues decreased by $17.7 million (2.7%), primarily due to a decrease in retail merchandising services from an intentional client exit, partially offset by pricing and European joint venture growth[130] - Marketing segment revenues increased by $62.7 million (15.5%), mainly driven by increased in-store sampling and demonstration services from event volume and pricing realization[130][131][132] - Operating income decreased by $30.9 million (65.9%) to $16.0 million, largely due to a $18.9 million increase in internal reorganization activities (professional fees, severance) and higher incentive compensation and technology expenses[134][136] - Net loss was $22.6 million, compared to net income of $23.2 million in the prior year, primarily due to decreased operating income and an $18.7 million (79.6%) increase in net interest expense[139][143] Comparison of the Nine Months Ended September 30, 2023 and 2022 Total revenues increased by 6.7% to $3,145.1 million, with organic revenues up 8.0%. Sales segment revenues remained flat, while marketing segment revenues grew by 18.0% due to in-store sampling and pricing. Operating income decreased by 69.4% to $30.0 million, primarily due to one-time charges in selling, general, and administrative expenses and a significant increase in interest expense, resulting in a net loss of $78.1 million - Total revenues increased by $198.1 million (6.7%) to $3,145.1 million, with organic revenues increasing by 8.0% excluding divestitures, acquisitions, and foreign exchange impacts[146] - Sales segment revenues remained relatively flat, decreasing by $0.6 million (0.0%), but organic revenues increased by $32.2 million due to European joint venture growth and retail-centric merchandising, offset by a client exit[147] - Marketing segment revenues increased by $198.7 million (18.0%), primarily from increased in-store sampling and demonstration services and pricing realization[149] - Operating income decreased by $68.1 million (69.4%) to $30.0 million, mainly due to a $34.9 million increase in internal reorganization activities, $17.4 million loss on disposal of assets, and increased litigation and technology expenses[151][153] - Net loss was $78.1 million, compared to net income of $44.4 million in the prior year, driven by decreased operating income and a $56.3 million (88.5%) increase in net interest expense[155][158] Non-GAAP Financial Measures This section presents non-GAAP financial measures like Adjusted Net Income and Adjusted EBITDA, used to evaluate business performance by excluding non-recurring or non-indicative items - Adjusted Net Income and Adjusted EBITDA are non-GAAP measures used to evaluate business performance by excluding non-indicative, unusual, or infrequent items, aiding comparability[162][163][164][165] Non-GAAP Financial Metrics (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Adjusted Net Income | $37,889 | $62,682 | $88,163 | $152,541 | | Adjusted EBITDA | $113,149 | $118,268 | $309,431 | $323,329 | - Adjusted EBITDA decreased by 4.3% for both the three and nine months ended September 30, 2023, compared to the prior year, primarily due to declines in the sales segment[145][160] Liquidity and Capital Resources This section discusses the company's sources and uses of cash, credit facilities, debt structure, and overall ability to meet its short-term and long-term financial obligations - Principal liquidity sources are cash flows from operations, Revolving Credit Facility, and other debt; principal uses are operating expenses, working capital, acquisitions, interest, and debt repayment[172] - Net cash provided by operating activities increased significantly to $180.7 million for the nine months ended September 30, 2023, from $82.0 million in 2022, driven by improved working capital[174][175] - The company had $500.0 million unused capacity under its Revolving Credit Facility as of September 30, 2023, subject to borrowing base limitations[181] - As of September 30, 2023, $64.3 million of cash and cash equivalents were held by foreign subsidiaries, and $23.2 million by foreign branches[204] Cash Flows The company's cash flows from operating activities significantly increased to $180.7 million for the nine months ended September 30, 2023, compared to $82.0 million in the prior year, primarily due to improved working capital management. Investing activities used less cash due to fewer acquisitions, while financing activities used more cash due to debt repurchases | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $180,712 | $81,950 | | Net cash used in investing activities | $(15,490) | $(103,062) | | Net cash used in financing activities | $(114,773) | $(32,920) | | Net change in cash, cash equivalents and restricted cash | $49,087 | $(66,343) | - The increase in operating cash flow was primarily due to increased working capital requirements in 2022 and improved days sales outstanding for accounts receivable in 2023[175] - Financing cash outflows were primarily driven by $104.0 million in Term Loan Facility debt repurchases and $9.9 million in principal payments in 2023[177] Description of Credit Facilities The company's Senior Secured Credit Facilities include a $500.0 million asset-based revolving credit facility (Revolving Credit Facility) maturing in December 2027 and a $1.18 billion secured first lien term loan credit facility (Term Loan Facility) maturing in October 2027. Additionally, $775.0 million of 6.50% Senior Secured Notes due 2028 are outstanding. All facilities are secured by company assets and contain customary covenants - The Revolving Credit Facility provides up to $500.0 million, maturing in December 2027, with $500.0 million unused capacity as of September 30, 2023[181] - The Term Loan Facility has an aggregate principal amount of $1.18 billion as of September 30, 2023, bearing interest at Term SOFR plus an applicable margin of 4.50%, and amortizes quarterly[188] - The $775.0 million 6.50% Senior Secured Notes due 2028 are payable semi-annually and are redeemable under various conditions, including optional redemption after November 15, 2023[193][194][198] - Both the Term Loan Facility and Notes are secured by first-priority liens on fixed asset collateral and second-priority liens on current asset collateral[190][196] Future Cash Requirement There were no material changes to the company's contractual future cash requirements from those disclosed in its 2022 Annual Report - No material changes to contractual future cash requirements were reported compared to the 2022 Annual Report[203] Cash and Cash Equivalents Held Outside the United States As of September 30, 2023, $64.3 million of cash and cash equivalents were held by foreign subsidiaries and $23.2 million by foreign branches. The company generally asserts indefinite reinvestment for foreign earnings, except for Canada, where a $0.9 million deferred tax liability was recorded for unremitted earnings | Metric (in millions) | Sep 30, 2023 | Dec 31, 2022 | | :------------------- | :----------- | :----------- | | Cash held by foreign subsidiaries | $64.3 | $81.8 | | Cash held by foreign branches | $23.2 | $28.1 | - The company generally asserts indefinite reinvestment for undistributed foreign earnings, except for Canada, where a $0.9 million deferred tax liability was recorded for unremitted earnings[205] Off-Balance Sheet Arrangements This section confirms the absence of off-balance sheet financing arrangements, liabilities, guarantee contracts, or interests in unconsolidated entities - The Company has no off-balance sheet financing arrangements, liabilities, guarantee contracts, or interests in unconsolidated entities[207] Critical Accounting Policies and Estimates This section states that no material changes occurred in the company's critical accounting policies and estimates during the reporting period - No material changes to critical accounting policies and estimates occurred during the nine months ended September 30, 2023, from those disclosed in the 2022 Annual Report[208] Recently Issued Accounting Pronouncements This section confirms that no recently issued accounting pronouncements are applicable to the company's financial reporting - No recently issued accounting pronouncements are applicable to the company[208] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to foreign currency and interest rate risks, and the strategies employed to manage these financial market exposures Foreign Currency Risk This section describes the company's exposure to foreign currency fluctuations from its international operations and the potential impact on financial results - The company's foreign currency risk primarily stems from operations in Europe and Canada, with functional currencies including Canadian dollars, British pounds, and euros[210][211] - A hypothetical 10% unfavorable change in exchange rates relative to the U.S. dollar would have decreased consolidated loss before taxes by approximately $2.8 million for the nine months ended September 30, 2023[211] Interest Rate Risk This section outlines the company's exposure to interest rate changes on its variable-rate debt and the use of derivative instruments to mitigate this risk - Interest rate exposure is primarily related to borrowings under the Term Loan Facility, Revolving Credit Facility, and Notes[212] - The company uses interest rate cap and collar agreements with an aggregate notional value of $950.0 million to manage exposure to SOFR fluctuations[212][213] - A one-eighth percentage point increase in the weighted average interest rate above the 0.75% floor would have increased interest expense by $0.7 million for the nine months ended September 30, 2023[213] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023. No material changes in internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2023[215] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[217] PART II—OTHER INFORMATION This section provides additional information on legal proceedings, risk factors, equity sales, defaults, mine safety, other disclosures, and exhibits Item 1. Legal Proceedings The company is involved in various legal matters, including commercial disputes with clients and vendors, and employment-related class actions concerning labor laws. The 'Take 5 Matter,' involving past misconduct at an acquired business, remains an ongoing concern with potential for additional litigation - The Company is involved in various legal matters, including commercial disputes and employment-related class/representative actions under U.S. Fair Labor Standards Act and California Labor Code[219][220][221] - The 'Take 5 Matter' involves misconduct at an acquired business, leading to termination of operations and client refunds, with potential for additional litigation and governmental investigations[222] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the 2022 Annual Report on Form 10-K - No material changes to the risk factors disclosed in the 2022 Annual Report on Form 10-K[223] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered sales of equity securities or use of proceeds were reported during the period - No unregistered sales of equity securities or use of proceeds to report[223] Item 3. Defaults Upon Senior Securities This section confirms that no defaults upon senior securities were reported during the period - No defaults upon senior securities to report[225] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable[225] Item 5. Other Information This section confirms no directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended September 30, 2023 - No directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended September 30, 2023[226] Item 6. Exhibits This section lists the exhibits filed with the report, including certifications from the Chief Executive Officer and Chief Financial Officer, and Inline XBRL documents - Exhibits include certifications from the CEO and CFO (31.1+, 31.2+, 32.1**, 32.2**) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[227] Signatures This section formally certifies the report's accuracy and completeness with the signatures of the Chief Executive Officer and Chief Financial Officer - The report was signed by David Peacock, Chief Executive Officer, and Christopher Growe, Chief Financial Officer, on November 7, 2023[230]