Advantage Solutions(ADV) - 2021 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the three months ended March 31, 2021, and 2020 Condensed Consolidated Balance Sheets This section provides a summary of the company's financial position as of March 31, 2021, and December 31, 2020 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $156,351 | $204,301 | | Total current assets | $887,191 | $899,751 | | Goodwill | $2,173,924 | $2,163,339 | | Other intangible assets, net | $2,412,136 | $2,452,796 | | Total assets | $5,726,170 | $5,777,492 | | Liabilities & Equity | | | | Total current liabilities | $522,139 | $574,989 | | Long-term debt, net | $2,028,090 | $2,029,328 | | Total liabilities | $3,203,353 | $3,258,703 | | Total stockholders' equity | $2,520,944 | $2,518,789 | Condensed Consolidated Statements of Operations and Comprehensive Loss This section details the company's financial performance for the three months ended March 31, 2021, and 2020 Condensed Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Revenues | $791,021 | $879,396 | | Cost of revenues | $653,339 | $746,693 | | Operating income | $37,588 | $31,438 | | Interest expense, net | $30,865 | $51,794 | | Net loss | $(546) | $(21,723) | | Net loss attributable to stockholders | $(116) | $(21,708) | | Basic and diluted net loss per share | $(0.00) | $(0.11) | Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2021, and 2020 Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $29,887 | $50,965 | | Net cash used in investing activities | $(19,281) | $(59,842) | | Net cash (used in) provided by financing activities | $(54,514) | $71,152 | | Net change in cash, cash equivalents and restricted cash | $(46,142) | $55,392 | Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies, significant transactions, and financial positions - The company, a provider of outsourced solutions to consumer goods companies and retailers, completed a merger on October 28, 2020, with Conyers Park II Acquisition Corp., which was renamed Advantage Solutions Inc., making Legacy Advantage a wholly owned subsidiary[21][22] - In Q1 2021, the company acquired two sales agencies for an aggregate purchase price of $18.2 million, including $14.0 million in cash, $2.7 million in contingent consideration, and $1.4 million in holdbacks, adding $11.5 million to goodwill[36][37][39] - As of March 31, 2021, the company had $2.1 billion in total debt, primarily consisting of a $1.32 billion New Term Loan Facility and $775 million in Notes[53] - The company is involved in ongoing legal matters related to its acquisition of Take 5 Media Group, including a voluntary disclosure to the U.S. Attorney's Office and FBI, and arbitration proceedings with the sellers of Take 5[81][82][83] - In Q1 2021, the company recognized $8.7 million in stock-based compensation expense related to its 2020 Incentive Award Plan, under which it granted Performance Stock Units (PSUs) and Restricted Stock Units (RSUs)[90][91][93] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance for Q1 2021, highlighting a 10.0% decrease in revenue to $791.0 million, primarily due to COVID-19's negative impact on the marketing segment's in-store sampling services, partially offset by a 5.2% revenue increase in the sales segment, driven by at-home consumption trends Q1 2021 vs Q1 2020 Financial Performance | Metric | Q1 2021 | Q1 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $791.0M | $879.4M | (10.0)% | | Operating Income | $37.6M | $31.4M | 19.6% | | Net Loss | $(0.5)M | $(21.7)M | 97.5% | | Adjusted EBITDA | $111.4M | $106.4M | 4.8% | - The COVID-19 pandemic had a mixed impact, causing a 30.9% revenue decline in the marketing segment due to suspended in-store sampling services, while the sales segment saw a 5.2% revenue increase from higher at-home food consumption and e-commerce growth[116][117] - In October 2020, the company completed a business combination, repaying $3.3 billion of old debt and refinancing with new facilities, leading to a $20.9 million (40.4%) decrease in net interest expense for Q1 2021 compared to Q1 2020[112][158] Revenues by Segment (in thousands) | Segment | Q1 2021 | Q1 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Sales | $534,324 | $507,798 | $26,526 | 5.2% | | Marketing | $256,697 | $371,598 | $(114,901) | (30.9)% | | Total | $791,021 | $879,396 | $(88,375) | (10.0)% | Quantitative and Qualitative Disclosures About Market Risk The company identifies its primary market risks as foreign currency fluctuations, equity price risk from its warrant liability, and interest rate risk on its variable-rate debt, actively managing these risks using derivative instruments - The company is exposed to foreign currency risk, primarily from operations in Europe and Canada, where a hypothetical 10% adverse change in exchange rates would have decreased pre-tax income by approximately $0.1 million in Q1 2021[216][217] - Interest rate risk is managed through derivative financial instruments, with the company holding interest rate cap agreements on $2.2 billion of notional principal as of March 31, 2021, where a 0.125% increase in the average interest rate would have increased Q1 2021 interest expense by $0.2 million[220][221][223] - The company faces equity price risk from its 7,333,333 private placement warrants, recorded as a liability at fair value, where a hypothetical 10% decrease in the company's stock price would result in a $5.6 million unrealized gain from the change in the warrant liability's fair value[218] Controls and Procedures The company reports that material weaknesses in its internal control over financial reporting, first identified in relation to the Take 5 Matter and later regarding warrant accounting, persisted as of March 31, 2021, leading to a conclusion that disclosure controls were not effective, though financial statements are asserted to be fairly presented - Material weaknesses in internal control over financial reporting continue to exist as of March 31, 2021, stemming from issues identified in the Take 5 Matter and a recent re-evaluation of warrant accounting[225][228] - Specific weaknesses include ineffective controls over acquisition due diligence, reliance on IT data for revenue recognition, the whistleblower complaint process, and the accounting evaluation of complex instruments like warrants[225][228] - A remediation plan is in progress, focusing on enhancing due diligence, improving internal reporting controls, strengthening the whistleblower process, and implementing controls for complex accounting, with remediation not considered complete until controls are implemented and tested over a sustained period[230][231][232] - Due to the material weaknesses, the CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2021[234] PART II—OTHER INFORMATION Legal Proceedings The company is involved in various legal matters, including employment-related class action lawsuits in California concerning alleged wage and hour violations, and multiple proceedings related to the Take 5 Matter, including a voluntary disclosure to the USAO and FBI, and ongoing arbitration with the former owners of Take 5 - The company is defending against several purported class action lawsuits in California related to alleged wage and hour violations under the California Labor Code[238][239][240] - In connection with the Take 5 Matter, the company voluntarily disclosed misconduct to the United States Attorney's Office and the FBI and is cooperating with investigations[242] - The company is in arbitration with the sellers of Take 5, seeking damages for breach of contract and fraud, while the sellers are seeking unpaid earn-out payments and damages for defamation, with the arbitration hearing scheduled for Q4 2021[244] Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its 2020 Annual Report on Form 10-K/A, though the known and unknown impacts of the COVID-19 pandemic could amplify the disclosed risks - No material changes have been made to the risk factors disclosed in the 2020 Annual Report on Form 10-K/A[246] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the reporting period - None[247] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the reporting period - None[247] Mine Safety Disclosures This item is not applicable as the company has no mine safety disclosures to report - None[247] Other Information The company reported no other information required to be disclosed in this item - None[247] Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, which include certifications by the CEO and CFO pursuant to the Securities Exchange Act of 1934 and various Inline XBRL data files - The exhibits filed with the report include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101 series)[249][250]