Advantage Solutions(ADV) - 2024 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements (Unaudited) Advantage Solutions reported a Q1 2024 revenue decrease and net loss, significantly improved by a gain from discontinued operations Condensed Consolidated Balance Sheets Total assets decreased to $3.63 billion and total liabilities to $2.55 billion as of March 31, 2024, primarily due to debt reduction Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $112,293 | $120,839 | | Total current assets | $932,128 | $1,012,034 | | Goodwill | $833,491 | $833,491 | | Total assets | $3,634,072 | $3,779,323 | | Total current liabilities | $476,928 | $541,297 | | Long-term debt, net of current portion | $1,795,878 | $1,848,118 | | Total liabilities | $2,549,889 | $2,675,246 | | Total stockholders' equity | $1,084,183 | $1,104,077 | Condensed Consolidated Statements of Operations and Comprehensive Loss Q1 2024 revenues decreased to $879.0 million, leading to an operating loss, but a significant gain from discontinued operations reduced the net loss Q1 2024 vs Q1 2023 Performance (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenues | $879,003 | $944,382 | | Operating (loss) income from continuing operations | $(26,762) | $6,744 | | Net loss from continuing operations | $(49,107) | $(34,370) | | Net income (loss) from discontinued operations | $45,992 | $(13,308) | | Net loss | $(3,115) | $(47,678) | | Basic net loss per common share | $(0.02) | $(0.15) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased to $1.084 billion due to a net loss of $3.1 million and $11.7 million in treasury stock purchases - Key drivers for the change in equity during Q1 2024 included a net loss of $3.1 million and the repurchase of treasury stock for $11.7 million[10] Condensed Consolidated Statements of Cash Flows Q1 2024 operating activities used cash, while divestitures provided $87.4 million, and financing used cash for debt and share repurchases Cash Flow Summary from Continuing Operations (in thousands) | Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(8,894) | $41,396 | | Net cash provided by (used in) investing activities | $68,715 | $(5,988) | | Net cash used in financing activities | $(66,882) | $(6,797) | - Investing activities were significantly impacted by $87.4 million in proceeds from divestitures in Q1 2024[12] - Financing activities in Q1 2024 included $47.9 million for repurchases of Senior Secured Notes and $11.7 million for the purchase of treasury stock[12] Notes to the Condensed Consolidated Financial Statements Notes detail segment reorganization, a $91.0 million divestiture, debt repurchase, goodwill impairment risks, and April 2024 equity grants - Effective January 1, 2024, the company revised its reportable segments to Branded Services, Experiential Services, and Retailer Services to align with its business strategy[18][68] - In January 2024, the company sold its foodservice businesses for approximately $91.0 million, recognizing a gain of $56.6 million These and other divested businesses are now presented as discontinued operations[34][36] - The company voluntarily repurchased $51.0 million of its Senior Secured Notes during Q1 2024, recognizing a gain of $2.7 million[50] - Goodwill impairment tests as of January 1, 2024, indicated that the fair values of the Branded Agencies and Experiential Services reporting units exceeded their carrying values by less than 20%[20] - In April 2024, the company granted 5.3 million RSUs, 1.1 million PSUs, and 3.0 million stock options[91] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 6.9% revenue decline to a European joint venture deconsolidation, with organic revenue growth of 3.0% and a widened operating loss Executive Overview The company reorganized into three new segments, divesting non-core units to simplify its portfolio and focus on core services - Effective January 1, 2024, the company realigned into three reportable segments: Branded Services, Experiential Services, and Retailer Services[96] - The company has formally disposed of certain business units as part of a reorganization plan, with these units now classified as discontinued operations[97] Results of Operations Q1 2024 revenues decreased 6.9% to $879.0 million due to a European joint venture deconsolidation, with an increased operating loss from reorganization costs Revenue by Segment (in thousands) | Segment | Q1 2024 | Q1 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Branded Services | $344,529 | $444,862 | $(100,333) | (22.6%) | | Experiential Services | $307,351 | $257,167 | $50,184 | 19.5% | | Retailer Services | $227,123 | $242,353 | $(15,230) | (6.3%) | | Total Revenues | $879,003 | $944,382 | $(65,379) | (6.9%) | - Excluding the impact of the European joint venture deconsolidation and foreign exchange rates, total revenues increased by 3.0%[132] - The increase in operating loss was primarily due to a $26.0 million increase in costs associated with internal reorganization activities, largely related to professional fees and severance[136][144] - Net income from discontinued operations of $46.0 million was primarily driven by a $56.7 million gain on the divestiture of the foodservice businesses[145] Non-GAAP Financial Measures Adjusted Net Income slightly increased to $14.9 million, but Adjusted EBITDA decreased 14.5% to $78.8 million due to lower revenues and wage inflation Adjusted EBITDA by Segment (in thousands) | Segment | Q1 2024 | Q1 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Branded Services | $41,400 | $61,193 | $(19,793) | (32.3%) | | Experiential Services | $17,125 | $6,862 | $10,263 | 149.6% | | Retailer Services | $20,235 | $24,015 | $(3,780) | (15.7%) | | Total Adjusted EBITDA | $78,760 | $92,070 | $(13,310) | (14.5%) | Reconciliation of Net Loss to Adjusted Net Income (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net loss | $(3,115) | $(47,678) | | Adjustments (Amortization, Reorganization, etc.) | $18,027 | $61,451 | | Adjusted Net Income | $14,912 | $13,773 | Liquidity and Capital Resources Q1 2024 operating activities used cash, while divestitures provided $87.4 million, and financing used cash for debt and share repurchases - Principal uses of cash in Q1 2024 included repurchases of Senior Secured Notes ($47.9 million), share repurchases ($11.7 million), and principal payments on the Term Loan Facility ($3.3 million)[171] - As of March 31, 2024, the company had $1.1 billion outstanding under its Term Loan Facility and $692.0 million under its Senior Secured Notes[48] - The company has access to a $500.0 million Revolving Credit Facility, with full capacity available as of March 31, 2024, subject to borrowing base limitations and outstanding letters of credit[174] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency and interest rate fluctuations, mitigated by derivative instruments, with minimal impact from hypothetical changes - The company's main foreign currency exposure is to the Canadian dollar[205] - Interest rate risk pertains to the Term Loan Facility and Revolving Credit Facility The company uses interest rate cap and collar agreements to manage this exposure[207] - As of March 31, 2024, the company had interest rate cap and collar contracts with an aggregate notional value of $950.0 million[57] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective[210] - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, the company's internal control[211] PART II—OTHER INFORMATION Legal Proceedings The company is involved in various legal matters, including class actions and the 'Take 5 Matter' related to misconduct, with indeterminable potential liability - The company is involved in various litigation, including class actions related to California labor laws and commercial disputes[214][216] - A key legal issue is the 'Take 5 Matter,' which involves misconduct at a previously acquired business (Take 5 Media Group), a subsequent government investigation, and potential liability for which the amount is currently indeterminable[217] Risk Factors No material changes to the risk factors previously disclosed in the 2023 Annual Report on Form 10-K were reported - No material changes to the risk factors disclosed in the 2023 Annual Report on Form 10-K were reported[218] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - None[218] Defaults Upon Senior Securities No defaults upon senior securities were reported - None[219] Mine Safety Disclosures This item is not applicable to the company - Not applicable[219] Other Information No directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement in Q1 2024 - No directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement in Q1 2024[220] Exhibits This section lists exhibits filed with the Form 10-Q, including an amendment to the First Lien Credit Agreement and CEO/CFO certifications - Filed exhibits include Amendment No. 3 to the First Lien Credit Agreement and required CEO/CFO certifications[221]