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.
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.
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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, 2023, the registrant had
Advantage Solutions Inc.
TABLE OF CONTENTS
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANTAGE SOLUTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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March 31, |
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December 31, |
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(in thousands, except share data) |
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2023 |
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2022 |
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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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Redeemable noncontrolling interest |
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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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( |
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Loans to Karman Topco L.P. |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Treasury stock, at cost; |
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( |
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( |
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Total equity attributable to stockholders of Advantage Solutions Inc. |
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Nonredeemable noncontrolling interest |
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Total stockholders’ equity |
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Total liabilities, redeemable noncontrolling interest, and |
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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) INCOME
(UNAUDITED)
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Three Months Ended March 31, |
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(in thousands, except share and per share data) |
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2023 |
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2022 |
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Revenues |
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$ |
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$ |
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Cost of revenues (exclusive of depreciation and |
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Selling, general, and administrative expenses |
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Depreciation and amortization |
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Total operating expenses |
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Operating (loss) income |
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( |
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Other expenses (income): |
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Change in fair value of warrant liability |
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( |
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Interest expense, net |
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Total other expenses (income) |
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( |
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(Loss) income before income taxes |
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( |
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(Benefit from) provision for income taxes |
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( |
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Net (loss) income |
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( |
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Less: net loss attributable to noncontrolling interest |
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( |
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( |
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Net (loss) income attributable to stockholders of |
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( |
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Other comprehensive income, net of tax: |
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Foreign currency translation adjustments |
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Total comprehensive (loss) income attributable to |
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$ |
( |
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$ |
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Net (loss) income per common share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
( |
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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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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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Advantage |
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Common Stock |
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Treasury Stock |
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Additional |
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Loans |
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Other |
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Solutions Inc. |
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Nonredeemable |
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Total |
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Paid-in |
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Accumulated |
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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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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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Income (Loss) |
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Equity |
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Interests |
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Equity |
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(in thousands, except share data) |
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Balance at January 1, 2023 |
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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 income (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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( |
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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) 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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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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Equity-based compensation of Karman |
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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 Employee |
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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 |
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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 |
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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, 2023 |
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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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Accumulated |
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Advantage |
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Common Stock |
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Treasury Stock |
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Additional |
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Loans |
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Other |
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Solutions Inc. |
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Nonredeemable |
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Total |
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Paid-in |
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Accumulated |
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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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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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Income (Loss) |
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Equity |
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Interests |
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Equity |
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(in thousands, except share data) |
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Balance at January 1, 2022 |
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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 income (loss) |
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Net income (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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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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Total comprehensive income (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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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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Equity-based compensation of Topco |
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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 Employee 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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Shares issued under 2020 Incentive |
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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, 2022 |
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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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See Notes to the Condensed Consolidated Financial Statements.
5
ADVANTAGE SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
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March 31, |
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(in thousands) |
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2023 |
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2022 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net (loss) income |
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$ |
( |
) |
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$ |
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Adjustments to reconcile net (loss) income to net cash provided by |
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Noncash interest expense (income) |
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( |
) |
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Amortization of deferred financing fees |
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Depreciation and amortization |
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Change in fair value of warrant liability |
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( |
) |
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( |
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Fair value adjustments related to contingent consideration |
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Deferred income taxes |
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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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Stock-based compensation |
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Equity in earnings of unconsolidated affiliates |
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( |
) |
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( |
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Distribution received from unconsolidated affiliates |
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Loss on sale of businesses and classification of assets held for sale |
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Loss on disposal of assets |
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|
|
|
|
|
||
Changes in operating assets and liabilities, net of effects from |
|
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
|
|
|
|
|
||
Prepaid expenses and other assets |
|
|
|
|
|
( |
) |
|
|
Accounts payable |
|
|
( |
) |
|
|
( |
) |
|
Accrued compensation and benefits |
|
|
( |
) |
|
|
|
|
|
Deferred revenues |
|
|
|
|
|
|
|
||
Other accrued expenses and other liabilities |
|
|
|
|
|
|
|
||
Net cash provided by (used in) operating activities |
|
|
|
|
|
( |
) |
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
||
Purchase of businesses, net of cash acquired |
|
|
|
|
|
( |
) |
|
|
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
||
Borrowings under lines of credit |
|
|
|
|
|
|
|
||
Payments on lines of credit |
|
|
( |
) |
|
|
( |
) |
|
Principal payments on long-term debt |
|
|
( |
) |
|
|
( |
) |
|
Repurchases from the Term Loan Facility |
|
|
( |
) |
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
|
|
|
|
|
||
Payments for taxes related to net share settlement |
|
|
( |
) |
|
|
|
|
|
Contingent consideration payments |
|
|
( |
) |
|
|
|
|
|
Holdback payments |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
|
Net effect of foreign currency changes on 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 |
|
|
|
|
|
|
|
||
Purchase of property and equipment recorded in accounts payable |
|
$ |
|
|
$ |
|
|
||
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, 2022 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, 2023 and for the three months ended March 31, 2023 and 2022 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, 2022 and the related footnotes thereto. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period.
Certain prior period balances have been reclassified to conform to the current Consolidated Statements of Cash Flows. These reclassifications had no impact on previously reported Consolidated Balance Sheets, Consolidated Statements of Operations Comprehensive (Loss) Income, and Consolidated Statements of Stockholders’ Equity.
Revenue Recognition
The Company recognizes revenue when control of promised goods or services are 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 sales segment are primarily recognized in the form of commissions, fee-for-service, or on a cost-plus basis for providing headquarter relationship management, analytics, insights and intelligence services, administrative services, retail merchandising services, retailer-client relationships and in-store media programs, and digital technology solutions (which include business intelligence solutions, e-commerce services, and content services).
Marketing segment revenues are primarily recognized in the form of fee-for-service (including retainer fees, fees charged to clients based on hours incurred, project-based fees, or fees for executing in-person consumer engagements or experiences, which engagements or experiences the Company refers to as “events”), commissions, or on a cost-plus basis for providing experiential marketing, shopper and consumer marketing services, private label development and digital, social, and media services.
7
The Company disaggregates revenues from contracts with clients by reportable segment. Revenues within each segment are further disaggregated between brand-centric services and retail-centric services. Brand-centric services are centered on providing solutions to support manufacturers’ sales and marketing strategies. Retail-centric services are centered on providing solutions to retailers.
Disaggregated revenues were as follows:
|
Three Months Ended March 31, |
|
|
|||||
|
2023 |
|
|
2022 |
|
|
||
(in thousands) |
|
|
|
|
|
|
||
Sales brand-centric services |
$ |
|
|
$ |
|
|
||
Sales retail-centric services |
|
|
|
|
|
|
||
Total sales revenues |
|
|
|
|
|
|
||
Marketing brand-centric services |
|
|
|
|
|
|
||
Marketing retail-centric services |
|
|
|
|
|
|
||
Total marketing revenues |
|
|
|
|
|
|
||
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, 2023 that were included in Deferred revenues as of December 31, 2022 were $
2. Held for Sale
In April 2023, the Company entered into an agreement and sold a portion of its sales reporting unit resulting in classification of certain assets and liabilities as held for sale as of March 31, 2023.
(in thousands) |
|
March 31, 2023 |
|
|
|
Assets |
|
|
|
|
|
Accounts receivable |
|
$ |
|
|
|
Inventory and other assets |
|
|
|
|
|
Property and equipment |
|
|
|
|
|
Intangible assets |
|
|
|
|
|
Total assets held for sale |
|
$ |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
Other long-term liabilities |
|
|
|
|
|
Total liabilities held for sale |
|
$ |
|
|
|
Assets and liabilities to be disposed of by the sale are classified as held for sale if the carrying amount is principally expected to be recovered through a sale rather than through continuing use. The classification occurs when the disposal group is available for immediate sale and the sale is probable. These criteria are generally met when an agreement to sell exists, or management has committed to a plan to sell the assets within one year. Disposal groups are measured at the lower of carrying amount or fair value less costs to sell, and long-lived assets included within the disposal group are not depreciated or amortized. The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less costs to sell is reported as an adjustment to the carrying value of the
8
disposal group. The Company determined that the disposal groups classified as held for sale do not meet the criteria for classification as discontinued operations. During the three months ended March 31, 2023, the Company recorded a loss of $
3. Intangible Assets
The following tables set forth information for intangible assets:
|
|
|
|
March 31, 2023 |
|
|||||||||||||
(amounts in thousands) |
|
Weighted Average Useful Life |
|
Gross Carrying |
|
|
Accumulated |
|
|
Accumulated |
|
|
Net Carrying |
|
||||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Client relationships |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Trade names |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Developed technology |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Total finite-lived intangible assets |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Trade names |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Total other intangible assets |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
December 31, 2022 |
|
|||||||||||||
(amounts in thousands) |
|
Weighted Average Useful Life |
|
Gross Carrying |
|
|
Accumulated |
|
|
Accumulated |
|
|
Net Carrying |
|
||||
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Client relationships |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Trade names |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Developed technology |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Total finite-lived intangible assets |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Trade names |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
Total other intangible assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Amortization of intangible assets was $
(in thousands) |
|
|
|
|
Remainder of 2023 |
|
$ |
147,721 |
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total amortization expense |
|
$ |
|
|
9
4. Debt
|
|
March 31, |
|
|
December 31, |
|
||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
Term Loan Facility |
|
$ |
|
|
$ |
|
||
Notes |
|
|
|
|
|
|
||
Government loans for COVID-19 relief |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total long-term debt |
|
|
|
|
|
|
||
Less: current portion |
|
|
|
|
|
|
||
Less: debt issuance costs |
|
|
|
|
|
|
||
Long-term debt, net of current portion |
|
$ |
|
|
$ |
|
||
As of March 31, 2022, the Company had $
As of March 31, 2023, 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.
10
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, 2023 |
|
|||||||||||||
(in thousands) |
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total assets measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Contingent consideration liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total liabilities measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
December 31, 2022 |
|
|||||||||||||
(in thousands) |
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total assets measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrant liability |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Contingent consideration liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total liabilities measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest Rate Cap Agreements
The Company had interest rate cap contracts with an aggregate notional value of principal of $
The fair value of the Company’s outstanding interest rate caps of $
During the three months ended March 31, 2023 and 2022, the Company recorded a gain of $
Contingent Consideration Liabilities
During each reporting period, the Company measures the fair value of its contingent liabilities by evaluating the significant unobservable inputs and probability weightings using Monte Carlo simulations. Any resulting decreases or increases in the fair value result in a corresponding gain or loss reported in “Selling, general, and administrative expenses” in the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.
11
As of March 31, 2023, the maximum potential payment outcomes were $
|
|
March 31, |
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
||
Beginning of the period |
|
$ |
|
|
$ |
|
||
Fair value of acquisitions |
|
|
|
|
|
|
||
Changes in fair value |
|
|
|
|
|
|
||
Payments |
|
|
( |
) |
|
|
|
|
Foreign exchange translation effects |
|
|
|
|
|
( |
) |
|
End of the period |
|
$ |
|
|
$ |
|
||
Long-term Debt
The following table sets 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, 2023 |
|
|
|
|
|
|
||
Term Loan Facility |
|
$ |
|
|
$ |
|
||
Notes |
|
|
|
|
|
|
||
Government loans for COVID-19 relief |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total long-term debt |
|
$ |
|
|
$ |
|
||
(in thousands) |
|
Carrying Value |
|
|
Fair Value |
|
||
Balance at December 31, 2022 |
|
|
|
|
|
|
||
Term Loan Facility |
|
$ |
|
|
$ |
|
||
Notes |
|
|
|
|
|
|
||
Government loans for COVID-19 relief |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total long-term debt |
|
$ |
|
|
$ |
|
||
6. Related Party Transactions
Beginning February 2023, an officer of the Company has served as a member of the board of directors of a client of the Company. The Company recognized $
Investment in Unconsolidated Affiliates
During the three months ended March 31, 2023 and 2022, the Company recognized revenues of $
7. Income Taxes
The Company’s effective tax rates were
12
jurisdiction, and adjusted for estimated permanent tax adjustments. The fluctuation in the Company’s effective tax rate was primarily due to a difference in projected book income or loss of each jurisdiction used in the annual effective tax rate and the application of the shortfall of $
8. Segments
The Company’s operations are organized into
(in thousands) |
|
Sales |
|
|
Marketing |
|
|
Total |
|
|||
Three Months Ended March 31, 2023 |
|
|
|
|
|
|
|
|
|
|||
Revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Depreciation and amortization |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Operating loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Three Months Ended March 31, 2022 |
|
|
|
|
|
|
|
|
|
|||
Revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Depreciation and amortization |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Operating income |
|
$ |
|
|
$ |
|
|
$ |
|
|||
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. 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 the Take 5 in July 2019, including the use of its associated trade names and the offering of its services to its clients 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 August 2019, the Company requested monetary indemnification from the sellers of Take 5 (including interest, fees and costs) based on allegations of breach of the asset purchase agreement, as well as fraud. In October 2022, an arbitrator made a final award in favor of the Company. 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
13
the Company, including lawsuits from clients, or governmental investigations, which may expose the Company to potential liability in excess of the amounts 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.
10. Stock-Based Compensation
The Company has issued nonqualified stock options, restricted stock units, and performance restricted stock units under the Advantage Solutions Inc. 2020 Incentive Award Plan (the “Plan”). The Company’s restricted stock units and performance restricted stock units, as described below, are expensed and reported as non-vested shares. The Company recognized stock-based compensation expense and equity-based compensation expense associated with the Common Series C Units of Karman Topco L.P. of $
Performance Restricted Stock Units
Performance restricted stock units (“PSUs”) are subject to the achievement of certain performance conditions based on the Company’s revenues (“PSU Revenues”) and Adjusted EBITDA (“PSU EBITDA”) targets in the respective measurement period and the recipient’s continued service to the Company. The PSUs are scheduled to vest over a
During the first quarter of 2023, the Compensation Committee determined that the achievement of the performance objective applicable to the PSU EBITDA 2022 objective did not meet the minimum threshold and the achievement of the performance objective applicable to the PSU Revenues 2022 objective was
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 Goals were met for these awards has been provided in the table below.
(in thousands, except share and per share data) |
|
Number of |
|
|
Number of |
|
|
Number of |
|
|
Weighted |
|
|
Maximum Remaining Unrecognized Compensation Expense |
|
|
Weighted-average remaining requisite service periods |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
January 1, 2023—December 31, 2023 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||
January 1, 2022—December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||
January 1, 2021—December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
||||||
The following table summarizes the PSU activity for the three months ended March 31, 2023:
14
|
|
Performance Share Units |
|
|
Weighted Average Grant |
|
||
Outstanding at January 1, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Distributed |
|
|
( |
) |
|
$ |
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
PSU performance adjustment |
|
|
( |
) |
|
$ |
|
|
Outstanding at March 31, 2023 |
|
|
|
|
$ |
|
||
Restricted Stock Units
Restricted stock units (“RSUs”) are subject to the recipient’s continued service to the Company. The RSUs are generally scheduled to vest over
During the three months ended March 31, 2023, the following activities involving RSUs occurred under the Plan:
|
|
Number of RSUs |
|
|
Weighted Average Grant |
|
||
Outstanding at January 1, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Distributed |
|
|
( |
) |
|
$ |
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
Outstanding at March 31, 2023 |
|
|
|
|
$ |
|
||
As of March 31, 2023, the total remaining unrecognized compensation cost related to RSUs amounted to $
Stock Options
During the three months ended March 31, 2023, the following activities involving stock options occurred under the Plan:
|
|
Stock Options |
|
|
Weighted Average Exercise Price |
|
||
Outstanding at January 1, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Forfeited |
|
|
( |
) |
|
$ |
|
|
Outstanding at March 31, 2023 |
|
|
|
|
$ |
|
||
The fair value of the employee stock options granted was estimated using the following weighted average assumptions for the three months ended:
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Share price |
|
$ |
|
|
$ |
|
||
Exercise price |
|
$ |
|
|
$ |
|
||
Dividend yield |
|
|
% |
|
|
% |
||
Expected volatility |
|
|
% |
|
|
% |
||
Risk-free interest rate |
|
|
% |
|
|
% |
||
Expected term |
|
|
|
|
|
|
||
15
As of March 31, 2023, the Company had approximately $
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.
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) |
|
2023 |
|
|
2022 |
|
|
||
Basic earnings per share computation: |
|
|
|
|
|
|
|
||
Numerator: |
|
|
|
|
|
|
|
||
Net (loss) income attributable to stockholders of |
|
$ |
( |
) |
|
$ |
|
|
|
Denominator: |
|
|
|
|
|
|
|
||
Weighted average common shares - basic |
|
|
|
|
|
|
|
||
Basic (loss) earnings per common share |
|
$ |
( |
) |
|
$ |
|
|
|
Diluted earnings per share computation: |
|
|
|
|
|
|
|
||
Numerator: |
|
|
|
|
|
|
|
||
Net (loss) income attributable to stockholders of |
|
$ |
( |
) |
|
$ |
|
|
|
Denominator: |
|
|
|
|
|
|
|
||
Weighted average common shares outstanding |
|
|
|
|
|
|
|
||
Performance Stock Units |
|
|
|
|
|
|
|
||
Restricted Stock Units |
|
|
|
|
|
|
|
||
Employee stock purchase plan and stock options |
|
|
|
|
|
|
|
||
Weighted average common shares - diluted |
|
|
|
|
|
|
|
||
Diluted (loss) earnings per common share |
|
$ |
( |
) |
|
$ |
|
|
|
The Company had
In accordance with the treasury 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
16
12. Subsequent Events
In April 2023, the Company entered into two interest rate collar transactions in an aggregate notional amount of $
In April 2023, a majority owned subsidiary of the Company operating in Japan entered into a loan agreement for an aggregate of approximately $
17
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 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 filed with the Securities and Exchange Commission on March 1, 2023. 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, 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 competitively advantaged sales and marketing services built over multiple decades – essential, business critical services like headquarter sales, retail merchandising, in-store sampling, digital commerce and shopper marketing. For brands and retailers of all sizes, we help get the right products on the shelf (whether physical or digital) and into the hands of consumers (however 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.
We have two reportable segments: sales and marketing.
Through our sales segment, which generated approximately 60.6% and 64.7% of our total revenues in the three months ended March 31, 2023 and 2022, respectively, we offer headquarter sales representation services to consumer goods manufacturers, for whom we prepare and present to retailers a business case to increase distribution of manufacturers’ products and optimize how they are displayed, priced and promoted. We also make in-store merchandising visits for both manufacturer and retailer clients to ensure the products are adequately stocked and properly displayed.
Through our marketing segment, which generated approximately 39.4% and 35.3% of our total revenues in the three months ended March 31, 2023 and 2022, respectively, we help brands and retailers reach consumers through two main categories within the marketing segment. The first and largest category is our retail experiential business, also known as in-store sampling or demonstrations, where we manage highly customized large-scale sampling programs (both in-store and online) for leading retailers. The second category is our collection of specialized agency services, in which we provide private label services to retailers and develop granular marketing programs for brands and retailers through our shopper, consumer and digital marketing agencies.
18
Impacts of the COVID-19 Pandemic
Our services experienced the effects from reductions in client spending due to the economic impact related to the COVID-19 pandemic. While mixed by services and geography, the spending reductions impacted all of our services and markets. Globally, the most impacted services were our in-store sampling and demonstration services which have continued to improve through the first quarter of 2023.
Summary
Our financial performance for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 includes:
Factors Affecting Our Business and Financial Reporting
There are a number of factors, in addition to the impact of the COVID-19 pandemic and inflation, that affect the performance of our business and the comparability of our results from period to period including:
19
How We Assess the Performance of Our Business
Revenues
Revenues related to our sales segment are primarily comprised of commissions, fee-for-service and cost-plus fees for providing retail merchandising services, category and space management, headquarter relationship management, technology solutions and administrative services. A small portion of our arrangements include performance incentive provisions, which allow us to earn additional revenues on our performance relative to specified quantitative or qualitative goals. We recognize the incentive portion of revenues under these arrangements when the related services are transferred to the customer.
Marketing segment revenues are primarily recognized in the form of a fee-for-service (including retainer fees, fees charged to clients based on hours incurred, project-based fees or fees for executing in-person consumer engagements or experiences, which engagements or experiences we refer to as events), commissions or on a cost-plus basis, in each case, related to services including experiential marketing, shopper and consumer marketing services, private label development or our digital, social and media services.
Given our acquisitions, we analyze our financial performance, in part, by measuring revenue growth in two ways—revenue growth attributable to organic activities and revenue growth attributable to acquisitions, which we refer to as organic revenues and acquired revenues, respectively.
We define organic revenues as any revenues that are not acquired revenues. Our organic revenues exclude the impacts of acquisitions and divestitures, when applicable, which improves comparability of our results from period to period.
In general, when we acquire a business, the acquisition includes a contingent consideration arrangement (e.g., an earn-out provision) and, accordingly, we separately track the relevant metrics associated with the earnout agreement of the acquired business. In such cases, we consider revenues generated by such a business during the 12 months following its acquisition to be acquired revenues. For example, if we completed an acquisition on July 1, 2022 for a business that included a contingent consideration arrangement, we would consider revenues from the acquired business from July 1, 2022 to June 30, 2023 to be acquired revenues. We generally consider growth
20
attributable to the financial performance of an acquired business after the 12-month anniversary of the date of acquisition to be organic.
In limited cases, when the acquisition of an acquired business does not include a contingent consideration arrangement, or we otherwise do not separately track the financial performance of the acquired business due to operational integration, we consider the revenues that the business generated in the 12 months prior to its acquisition to be our acquired revenues for the 12 months following its acquisition, and any differences in revenues actually generated during the 12 months after its acquisition to be organic. For example, if we completed an acquisition on July 1, 2022 for a business that did not include a contingent consideration arrangement, we would consider the amount of revenues from the acquired business from July 1, 2021 to June 30, 2022 to be acquired revenues during the period from July 1, 2022 to June 30, 2023, with any differences from that amount actually generated during the latter period to be organic revenues.
All revenues generated by our acquired businesses are considered to be organic revenues after the 12-month anniversary of the date of acquisition.
When we divest a business, we consider the revenues that the divested business generated in the 12 months prior to its divestiture to be subtracted from acquired revenues for the 12 months following its divestiture. For example, if we completed a divestiture on July 1, 2022 for a business, we would consider the amount of revenues from the divested business from July 1, 2021 to June 30, 2022 to be subtracted from acquired revenues during the period from July 1, 2022 to June 30, 2023.
We measure organic revenue growth and acquired revenue growth by comparing the organic revenues or acquired revenues, respectively, period over period, net of any divestitures.
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. Additionally, included in selling, general and administrative expenses are costs associated with the changes in fair value of the contingent consideration of acquisitions and other acquisition-related costs. Acquisition-related costs are comprised of fees related to change of equity ownership, transaction costs, professional fees, due diligence and integration 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
21
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.
Interest Expense
Interest expense relates primarily to borrowings under the Senior Secured Credit Facilities as described below. 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, but are not limited to, 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, 2023 and 2022, respectively.
Income Taxes
Income tax expense and our effective tax rates can be affected by many factors, including state apportionment factors, our acquisitions, 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 flows from operations, borrowings under the Revolving Credit Facility, and other debt. Our principal uses of cash are operating expenses, working capital requirements, acquisitions and repayment of debt.
Adjusted Net Income
Adjusted Net Income is a non-GAAP financial measure. Adjusted Net Income means net loss before (i) impairment of goodwill and indefinite-lived assets, (ii) amortization of intangible assets, (iii) equity-based compensation of Karman Topco L.P., (iv) changes in fair value of warrant liability, (v) fair value adjustments of contingent consideration related to acquisitions, (vi) acquisition-related expenses, (vii) costs associated with COVID-19, net of benefits received, (viii) net income attributable to noncontrolling interest, (ix) reorganization and restructuring expenses, (x) litigation expenses, (xi) loss on disposal of assets, (xii) gain on repurchases from the
22
Term Loan Facility, (xiii) costs associated with the Take 5 Matter, (xvi) 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 EBITDA and Adjusted EBITDA by Segment
Adjusted EBITDA and Adjusted EBITDA by segment are supplemental non-GAAP financial measures of our operating performance. Adjusted EBITDA means net (loss) income before (i) interest expense, net, (ii) (benefit from) provision for 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.
We present Adjusted EBITDA 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 other tests based on measures substantially similar to Adjusted EBITDA. Neither Adjusted EBITDA nor Adjusted EBITDA by segment should be considered as an alternative for Net income, our most directly comparable measure presented on a GAAP basis.
Results of Operations for the Three Months Ended March 31, 2023 and 2022
The following table sets forth items derived from the Company’s consolidated statements of operations for the three months ended March 31, 2023 and 2022 in dollars and as a percentage of total revenues.
|
Three Months Ended March 31, |
|
|
|||||||||||||
(amounts in thousands) |
2023 |
|
|
2022 |
|
|
||||||||||
Revenues |
$ |
1,011,983 |
|
|
|
100.0 |
% |
|
$ |
914,808 |
|
|
|
100.0 |
% |
|
Cost of revenues |
|
888,040 |
|
|
|
87.8 |
% |
|
|
785,943 |
|
|
|
85.9 |
% |
|
Selling, general, and administrative expenses |
|
75,095 |
|
|
|
7.4 |
% |
|
|
48,073 |
|
|
|
5.3 |
% |
|
Depreciation and amortization |
|
57,104 |
|
|
|
5.6 |
% |
|
|
57,768 |
|
|
|
6.3 |
% |
|
Total expenses |
|
1,020,239 |
|
|
|
100.8 |
% |
|
|
891,784 |
|
|
|
97.5 |
% |
|
Operating (loss) income |
|
(8,256 |
) |
|
|
(0.8 |
)% |
|
|
23,024 |
|
|
|
2.5 |
% |
|
Other (income) expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in fair value of warrant liability |
|
(73 |
) |
|
|
0.0 |
% |
|
|
(15,442 |
) |
|
|
(1.7 |
)% |
|
Interest expense, net |
|
47,191 |
|
|
|
4.7 |
% |
|
|
11,883 |
|
|
|
1.3 |
% |
|
Total other expenses (income) |
|
47,118 |
|
|
|
4.7 |
% |
|
|
(3,559 |
) |
|
|
(0.4 |
)% |
|
(Loss) income before income taxes |
|
(55,374 |
) |
|
|
(5.5 |
)% |
|
|
26,583 |
|
|
|
2.9 |
% |
|
(Benefit from) provision for income taxes |
|
(7,696 |
) |
|
|
(0.8 |
)% |
|
|
9,049 |
|
|
|
1.0 |
% |
|
Net (loss) income |
$ |
(47,678 |
) |
|
|
(4.7 |
)% |
|
$ |
17,534 |
|
|
|
1.9 |
% |
|
Other Financial Data |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted Net Income(1) |
$ |
13,773 |
|
|
|
1.4 |
% |
|
$ |
49,115 |
|
|
|
5.4 |
% |
|
Adjusted EBITDA(1) |
$ |
92,070 |
|
|
|
9.1 |
% |
|
$ |
96,739 |
|
|
|
10.6 |
% |
|
23
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 |
% |
|
Total revenues increased by $97.2 million, or 10.6%, during the three months ended March 31, 2023, as compared to the three months ended March 31, 2022.
The sales segment revenues increased $21.4 million during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, of which $4.2 million were revenues from acquired businesses. Excluding revenues from acquired businesses and unfavorable foreign exchange rates of $8.4 million, the segment experienced an increase of $25.6 million in organic revenues primarily due to growth in our retail merchandising services and European joint venture.
The marketing segment revenues increased $75.8 million during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, of which $7.9 million were revenues from acquired businesses. Excluding revenues from acquired businesses and unfavorable foreign exchange rates of $4.7 million, the segment experienced an increase of $72.6 million in organic revenues. The increase in revenues was primarily due to an increase in our in-store product demonstration and sampling services, partially offset by a decrease in certain of our digital services.
Cost of Revenues
Cost of revenues as a percentage of revenues for the three months ended March 31, 2023 was 87.8%, as compared to 85.9% for the three months ended March 31, 2022. The increase as a percentage of revenues was largely attributable to the change in the revenue mix of our services and the inflationary impact in recruiting and wages.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of revenues for the three months ended March 31, 2023 was 7.4%, compared to 5.3% for the three months ended March 31, 2022, primarily due to $16.5 million of non-cash loss on disposal of assets and adjustments to assets held for sale and $10.5 million increase in reorganization charges, primarily related to the transition of certain of our executive officers.
24
Depreciation and Amortization Expense
Depreciation and amortization expense was $57.1 million for the three months ended March 31, 2023 compared to $57.8 million for the three months ended March 31, 2022, which stayed relatively consistent year over year.
Operating (Loss) Income
|
Three Months Ended March 31, |
|
|
Change |
|
|
||||||||||
(amounts in thousands) |
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
||||
Sales |
$ |
(4,146 |
) |
|
$ |
18,973 |
|
|
$ |
(23,119 |
) |
|
|
(121.9 |
)% |
|
Marketing |
|
(4,110 |
) |
|
|
4,051 |
|
|
|
(8,161 |
) |
|
|
(201.5 |
)% |
|
Total operating (loss) income |
$ |
(8,256 |
) |
|
$ |
23,024 |
|
|
$ |
(31,280 |
) |
|
|
(135.9 |
)% |
|
The increase in operating loss during the three months ended March 31, 2023 was due to one-time charges in selling, general and administrative expenses as described above.
Change in Fair Value of Warrant Liability
Change in fair value of warrant liability was $0.1 million of non-cash gain for the three months ended March 31, 2023 compared to $15.4 million of non-cash gain resulting from a fair value adjustment to warrant liability with respect to the private placement warrants for the three months ended March 31, 2022.
Interest Expense, net
Interest expense, net increased by $35.3 million, or 297.1%, to $47.2 million for the three months ended March 31, 2023, from $11.9 million for the three months ended March 31, 2022. The increase in interest expense was primarily due to the change in fair value in our derivative instruments in the prior year, which lowered the prior year expense, and higher interest rates in 2023.
(Benefit from) Provision for Income Taxes
Benefit from taxes was $7.7 million for the three months ended March 31, 2023 as compared to $9.0 million of provision for income taxes for the three months ended March 31, 2022. The fluctuation was primarily attributable to a pre-tax loss during the three months ended March 31, 2023 compared to a pre-tax income during the three months ended March 31, 2022.
Net (Loss) Income
Net loss was $47.7 million for the three months ended March 31, 2023, compared to net income of $17.5 million for the three months ended March 31, 2022. The decrease in net income was primarily driven by the increase in interest expense, decrease in operating income as described above, offset by the benefit from income taxes.
Adjusted Net Income
The decrease in Adjusted Net Income for the three months ended March 31, 2023 was attributable to the increase in interest expense, net and decrease in non-cash gain from the change in fair value of warrant liability as described above. For a reconciliation of Adjusted Net Income to Net income, see “ —Non-GAAP Financial Measures.”
25
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 |
)% |
|
Adjusted EBITDA decreased by $4.7 million, or 4.8%, to $92.1 million for the three months ended March 31, 2023, from $96.7 million for the three months ended March 31, 2022. In the sales segment, the decrease was primarily attributable to the increase in cost of revenues as described above. In the marketing segment, the decrease was driven largely by continued headwinds in our higher-margin digital services, partially offset by the growth in revenues from the in-store sampling and demonstration services as described above. For a reconciliation of Adjusted EBITDA to Net income, see “—Non-GAAP Financial Measures.”
26
Non-GAAP Financial Measures
Adjusted Net Income is a non-GAAP financial measure. Adjusted Net Income means net (loss) income before (i) amortization of intangible assets, (ii) impairment of goodwill and indefinite-lived assets (iii) equity-based compensation of Karman Topco L.P., (iv) changes in fair value of warrant liability, (v) fair value adjustments of contingent consideration related to acquisitions, (vi) acquisition-related expenses, (vii) costs associated with COVID-19, net of benefits received, (viii) net income attributable to noncontrolling interest, (ix) reorganization and restructuring expenses, (x) litigation expenses, (xi) loss on disposal of assets, (xii) gain on repurchases from the Term Loan Facility, (xiii) costs associated with 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 our Net income, our most directly comparable measure presented on a GAAP basis.
A reconciliation of Adjusted Net Income to Net income is provided in the following table:
|
Three Months Ended March 31, |
|
|
|||||
|
2023 |
|
|
2022 |
|
|
||
(in thousands) |
|
|
|
|
|
|
||
Net (loss) income |
$ |
(47,678 |
) |
|
$ |
17,534 |
|
|
Less: Net income attributable to noncontrolling interest |
|
(91 |
) |
|
|
(1,431 |
) |
|
Add: |
|
|
|
|
|
|
||
Equity-based compensation of Karman Topco L.P.(a) |
|
(2,269 |
) |
|
|
(2,795 |
) |
|
Change in fair value of warrant liability |
|
(73 |
) |
|
|
(15,442 |
) |
|
Fair value adjustments related to contingent consideration |
|
4,292 |
|
|
|
2,134 |
|
|
Acquisition-related expenses(d) |
|
2,432 |
|
|
|
6,803 |
|
|
Reorganization and restructuring expenses(e) |
|
11,148 |
|
|
|
643 |
|
|
Loss on disposal of assets(g) |
|
16,497 |
|
|
|
2,782 |
|
|
Amortization of intangible assets(h) |
|
49,729 |
|
|
|
50,277 |
|
|
Costs associated with COVID-19, net of benefits received(i) |
|
1,017 |
|
|
|
1,574 |
|
|
Gain on repurchases from the Term Loan Facility(m) |
|
(275 |
) |
|
|
— |
|
|
Costs associated with the Take 5 Matter(j) |
|
80 |
|
|
|
1,087 |
|
|
Tax adjustments related to non-GAAP adjustments(k) |
|
(21,218 |
) |
|
|
(16,913 |
) |
|
Adjusted Net Income |
$ |
13,773 |
|
|
$ |
49,115 |
|
|
Adjusted EBITDA and Adjusted EBITDA by segment are supplemental non-GAAP financial measures of our operating performance. Adjusted EBITDA means net (loss) income before (i) interest expense, net, (ii) (benefit from) provision for income taxes, (iii) depreciation, (iv) amortization of intangible assets, (v) impairment of goodwill and indefinite-lived 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.
We present Adjusted EBITDA 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 other tests based on measures substantially similar to
27
Adjusted EBITDA. Neither Adjusted EBITDA 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.
A reconciliation of Adjusted EBITDA to Net income is provided in the following table:
Consolidated |
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 |
|
4,292 |
|
|
|
2,134 |
|
|
Acquisition-related expenses(d) |
|
2,432 |
|
|
|
6,803 |
|
|
Loss on disposal of assets(g) |
|
16,497 |
|
|
|
2,782 |
|
|
EBITDA for economic interests in investments(l) |
|
(1,185 |
) |
|
|
(4,052 |
) |
|
Reorganization and restructuring expenses(e) |
|
11,148 |
|
|
|
643 |
|
|
Costs associated with COVID-19, net of benefits received(i) |
|
1,017 |
|
|
|
1,574 |
|
|
Costs associated with the Take 5 Matter(j) |
|
80 |
|
|
|
1,087 |
|
|
Adjusted EBITDA |
$ |
92,070 |
|
|
$ |
96,739 |
|
|
Financial information by segment, including a reconciliation of Adjusted EBITDA by segment to operating income, the closest GAAP financial measure, is provided in the following table:
Sales Segment |
Three Months Ended March 31, |
|
|
|||||
|
2023 |
|
|
2022 |
|
|
||
(in thousands) |
|
|
|
|
|
|
||
Operating (loss) income |
$ |
(4,146 |
) |
|
$ |
18,973 |
|
|
Add: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
39,814 |
|
|
|
40,969 |
|
|
Equity-based compensation of Karman Topco L.P.(a) |
|
(1,501 |
) |
|
|
(1,652 |
) |
|
Stock-based compensation expense(b) |
|
6,690 |
|
|
|
4,758 |
|
|
Fair value adjustments related to contingent consideration |
|
4,097 |
|
|
|
803 |
|
|
Acquisition-related expenses(d) |
|
1,734 |
|
|
|
4,532 |
|
|
Loss on disposal of assets(g) |
|
11,744 |
|
|
|
2,782 |
|
|
EBITDA for economic interests in investments(l) |
|
(1,275 |
) |
|
|
(4,207 |
) |
|
Reorganization and restructuring expenses(e) |
|
8,602 |
|
|
|
819 |
|
|
Costs associated with COVID-19, net of benefits received(i) |
|
80 |
|
|
|
456 |
|
|
Sales Segment Adjusted EBITDA |
$ |
65,839 |
|
|
$ |
68,233 |
|
|
28
Marketing Segment |
Three Months Ended March 31, |
|
|
|||||
|
2023 |
|
|
2022 |
|
|
||
(in thousands) |
|
|
|
|
|
|
||
Operating (loss) income |
$ |
(4,110 |
) |
|
$ |
4,051 |
|
|
Add: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
17,290 |
|
|
|
16,799 |
|
|
Equity-based compensation of Karman Topco L.P.(a) |
|
(768 |
) |
|
|
(1,143 |
) |
|
Stock-based compensation expense(b) |
|
4,520 |
|
|
|
3,013 |
|
|
Fair value adjustments related to contingent consideration |
|
195 |
|
|
|
1,331 |
|
|
Acquisition-related expenses(d) |
|
698 |
|
|
|
2,271 |
|
|
Loss on disposal of assets(g) |
|
4,753 |
|
|
|
— |
|
|
EBITDA for economic interests in investments(l) |
|
90 |
|
|
|
155 |
|
|
Reorganization and restructuring expenses(e) |
|
2,546 |
|
|
|
(176 |
) |
|
Costs associated with COVID-19, net of benefits received(i) |
|
937 |
|
|
|
1,118 |
|
|
Costs associated with the Take 5 Matter(j) |
|
80 |
|
|
|
1,087 |
|
|
Marketing Segment Adjusted EBITDA |
$ |
26,231 |
|
|
$ |
28,506 |
|
|
|
|
(a) |
Represents expenses related to (i) equity-based compensation expense associated with grants of Common Series D Units of 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. See Note 5—Fair Value of Financial Instruments to our unaudited condensed financial statements for the three months ended March 31, 2023 and 2022. |
(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 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 losses on disposal of assets related to divestitures and losses on sale of businesses and classification of assets held for sale, less cost to sell. |
(h) |
Represents the amortization of intangible assets recorded in connection with the 2014 Topco Acquisition and our other acquisitions. |
(i) |
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. |
(j) |
Represents costs associated with the Take 5 Matter, primarily, professional fees and other related costs. |
(k) |
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. |
(l) |
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. |
(m) |
Represents a gain associated with the repurchases from the Term Loan Facility during the three months ended March 31, 2023. For additional information, refer to Note 4—Debt to our unaudited condensed financial statements for the three months ended March 31, 2023 and 2022. |
29
Liquidity and Capital Resources
Our principal sources of liquidity were cash flows from operations, borrowings under the Revolving Credit Facility, and other debt. Our principal uses of cash are operating expenses, working capital requirements, acquisitions, interest on debt and repayment of debt.
Cash Flows
A summary of our cash operating, investing and financing activities are shown in the following table:
|
|
March 31, |
|
|
|||||
(in thousands) |
|
2023 |
|
|
2022 |
|
|
||
Net cash provided by operating activities |
|
$ |
43,086 |
|
|
$ |
(23,955 |
) |
|
Net cash used in investing activities |
|
|
(7,278 |
) |
|
|
(12,239 |
) |
|
Net cash used in financing activities |
|
|
(6,878 |
) |
|
|
(2,017 |
) |
|
Net effect of foreign currency fluctuations on cash |
|
|
1,301 |
|
|
|
(1,485 |
) |
|
Net change in cash, cash equivalents and restricted cash |
|
$ |
30,231 |
|
|
$ |
(39,696 |
) |
|
Net Cash Provided by Operating Activities
Net cash used in operating activities during the three months ended March 31, 2023 consisted of net loss of $47.7 million adjusted for certain non-cash items, including depreciation and amortization of $57.1 million and effects of changes in working capital. Net cash used in operating activities during the three months ended March 31, 2022 consisted of net income of $17.5 million adjusted for certain non-cash items, including depreciation and amortization of $57.8 million and effects of changes in working capital. The increase in cash provided by operating activities during the three months ended March 31, 2023 relative to the same period in 2022 was primarily due to increased working capital requirements to stand up our services during the three months ended March 31, 2022.
Net Cash Used in Investing Activities
Net cash used in investing activities during the three months ended March 31, 2023 primarily consisted of the purchase of property and equipment of $7.3 million. Net cash used in investing activities during the three months ended March 31, 2022 primarily consisted of the purchase of businesses, net of cash acquired of $1.8 million and purchase of property and equipment of $10.4 million.
Net Cash Used in Financing Activities
We primarily finance our growth through cash flows from operations, however, we also incur long-term debt or borrow under lines of credit when necessary to execute acquisitions. Additionally, many of our acquisition agreements include contingent consideration arrangements, which are generally based on the achievement of future financial performance by the operations attributable to the acquired companies. The portion of the cash payment up to the acquisition date fair value of the contingent consideration liability are classified as financing outflows, and amounts paid in excess of the acquisition date fair value of that liability are classified as operating outflows.
Cash flows used in financing activities during the three months ended March 31, 2023 were primarily related to payments of contingent consideration and holdback payments of $2.5 million, repayment of principal on our Term Loan Facility of $3.4 million, repurchases from the Term Loan Facility of $1.7 million, partially offset by $1.2 million related to proceeds from the issuance of Class A common stock. Cash flows used in financing activities during the three months ended March 31, 2022 were primarily related to borrowings of $9.3 million, and offset by repayment of $9.0 million, on our lines of credit, payment of principal on our Term Loan Facility of $3.3 million, partially offset by $1.7 million related to proceeds from the issuance of Class A common stock.
30
Description of Credit Facilities
Senior Secured Credit Facilities
Advantage Sales & Marketing Inc. (the “Borrower”), an indirect wholly-owned subsidiary of the Company, 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 $1.293 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, 2023, we had unused capacity under our Revolving Credit Facility available to us of $500.0 million, subject to borrowing base limitations (without giving effect to approximately $44.5 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 thresholders 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,
31
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 million and 10% of the lesser of the borrowing base and 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 $1.293 billion. Borrowings under the Term Loan Facility amortize in equal quarterly installments in an amount equal to 1.00% per annum of the principal amount. Borrowings will bear interest at a floating rate, which can be either an adjusted Eurodollar rate plus an applicable margin or, at the Borrower’s option, a base rate plus an applicable margin. The applicable margins for the Term Loan Facility are 4.50% with respect to Eurodollar rate borrowings and 3.50% with respect to base rate borrowings.
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 (other than a 1.00% premium on any prepayment in connection with a repricing transaction prior to the date that is six months after the effective date of the First Lien Amendment).
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.
32
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”). Substantially concurrently with the Transactions, 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 Notes were sold to BofA Securities, Inc., Deutsche Bank Securities Inc., Morgan Stanley & Co. LLC and Apollo Global Securities, LLC. The Notes were resold to certain non-U.S. persons pursuant to Regulation S under the Securities Act of 1933, as amended (the “Securities Act”), and to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act at a purchase price equal to 100% of their principal amount. 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.
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, commencing on May 15, 2021. 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 thresholders 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 on or after November 15, 2023 at the applicable redemption prices specified in the Indenture plus accrued and unpaid interest. The Notes may also be redeemed at any time prior to November 15, 2023 at a redemption price equal to 100% of the aggregate principal amount of such Notes to be redeemed plus a “make-whole” premium, plus accrued and unpaid interest. In addition, the Issuer may redeem up to 40% of the original aggregate principal amount of Notes before November 15, 2023 with the net cash proceeds of certain equity offerings at a redemption price equal to 106.5% of the aggregate principal amount of such Notes to be redeemed, plus accrued and unpaid interest. Furthermore, prior to November 15, 2023 the Issuer may redeem during each calendar year up to 10% of the original aggregate principal amount of the Notes at a redemption price
33
equal to 103% of the aggregate principal amount of such Notes to be redeemed, 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.
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.
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 2022 Annual Report.
Cash and Cash Equivalents Held Outside the United States
As of March 31, 2023, and December 31, 2022, $92.2 million and $81.8 million, respectively, of our cash and cash equivalents were held by foreign subsidiaries. As of March 31, 2023, and December 31, 2022, $25.6 million and $28.1 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 $2.8 million of withholding tax as of December 31, 2022 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 December 31, 2022, to be indefinitely reinvested and, accordingly, no provision has been made for taxes in excess of the $2.8 million noted above.
34
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 2022 Annual Report and did not materially change during the three months ended March 31, 2023.
Recently Issued Accounting Pronouncements
Not applicable
35
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 Europe and Canada. We use financial derivative instruments to hedge foreign currency exchange rate risks associated with our Canadian subsidiary.
The assets and liabilities of our foreign subsidiaries and foreign branches, whose functional currencies are primarily Canadian dollars, British pounds and euros, respectively, 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 income before taxes would have decreased by approximately $0.8 million for the three months ended March 31, 2023.
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 cap agreements to manage our exposure to potential interest rate increases that may result from fluctuations in LIBOR. 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) Income.
As of March 31, 2023, we had interest rate cap contracts on an additional $650.0 million of notional value of principal from other financial institutions, with a maturity date of December 16, 2024 to manage our exposure to interest rate movements on variable rate credit facilities when one-month LIBOR on term loans exceeding a cap of 0.75%. The aggregate fair value of our interest rate caps represented an outstanding net asset of $39.6 million as of March 31, 2023.
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, for the three months ended March 31, 2023.
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.
36
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, 2023, our disclosure controls and procedures were effective to ensure 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 Securities and Exchange Commission 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.
There were no changes in internal control over financial reporting that occurred during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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 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.
37
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 above matters and other legal matters will not result in us having to make payments in excess of such accruals or that the above 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 (“PAGA”). 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.
A former employee filed a complaint in California Superior Court, Santa Clara County in July 2017, which seeks civil damages and penalties on behalf of the plaintiff and similarly situated persons for various alleged wage and hour violations under the Labor Code, including failure to pay wages and/or overtime, failure to provide meal and rest breaks, failure to pay reporting time pay, waiting time penalties and penalties pursuant to PAGA. We filed a motion for summary judgment. The court granted our motion for summary judgment in March 2020. The plaintiff filed an appeal of the court’s ruling, and in December 2022, the Court of Appeals reversed the court’s grant of summary judgment and directed the matter back to the superior court for further proceedings. We have retained outside counsel to represent us and intend to vigorously defend our interests in this matter.
Proceedings Relating to Take 5
In April 2018, we 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, we terminated all operations of the Take 5 in July 2019, including the use of its associated trade names and the offering of its services to its clients and offered refunds to clients of collected revenues attributable to the period after our acquisition. We refer to the foregoing as the Take 5 Matter. We voluntarily disclosed to the United States Attorney’s Office and the Federal Bureau of Investigation certain misconduct occurring at Take 5. We intend to cooperate in this and any other governmental investigations that may arise in connection with the Take 5 Matter. In August 2019, we requested monetary indemnification from the sellers of Take 5 (including interest, fees and costs) based on allegations of breach of the asset purchase agreement, as well as fraud. In October 2022, an arbitrator made a final award in our favor. We are currently unable to estimate if or when we will be able to collect any amounts associated with this arbitration. The Take 5 Matter may result in additional litigation against us, including lawsuits from clients, or governmental investigations, which may expose us to potential liability in excess of the amounts we offered by as refunds to Take 5 clients. We are 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 our financial position, liquidity, or results of operations.
ITEM 1A. RISK FACTORS
38
There have been no material changes to the risk factors disclosed under Part I, Item 1A “Risk Factors” in the 2022 Annual Report on Form 10-K, 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
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None
ITEM 6. Exhibits
The following exhibits are filed with this Report:
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Description |
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10.2+# |
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10.3+# |
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10.4+# |
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10.5+# |
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10.6# |
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10.7# |
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10.8# |
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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 compensation plan or arrangement. |
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***
40
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 10, 2023 |
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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 10, 2023 |
41
Employee Form
ADVANTAGE SOLUTIONS INC.
2020 INCENTIVE AWARD PLAN
STOCK OPTION GRANT NOTICE
Advantage Solutions Inc., a Delaware corporation (the “Company”), pursuant to its 2020 Incentive Award Plan, as amended from time to time (the “Plan”), hereby grants to the holder listed below (“Participant”) an option to purchase the number of Shares set forth below (the “Option”). The Option is subject to the terms and conditions set forth in this Stock Option Grant Notice (the “Grant Notice”), the Stock Option Agreement attached hereto as Exhibit A, together with any Annexes thereto (the “Agreement”), and the Plan, each of which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in the Grant Notice and the Agreement.
Participant: |
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Grant Date: |
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Number of Shares subject to Option: |
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Exercise Price Per Share: |
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Type of Shares Issuable: |
Class A Common Stock |
Expiration Date: |
Ten years from the Grant Date, unless otherwise terminated, expired or cancelled prior thereto in accordance with the terms of the Plan and the Agreement |
Type of Option: |
☐ Incentive Stock Option Non-Qualified Stock Option
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Vesting Dates: |
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By Participant’s signature below, Participant agrees to be bound by the terms and conditions of the Plan, the Agreement and the Grant Notice. Participant has carefully reviewed the Plan, the Agreement and the Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing the Grant Notice and fully understands all provisions of the Plan, the Agreement and the Grant Notice. Participant understands and acknowledges that Participant is responsible for all taxes due with respect to the Option. Participant hereby agrees to accept as binding, conclusive and final all decisions and interpretations of the Administrator arising under the Plan, the Agreement and the Grant Notice.
ADVANTAGE SOLUTIONS INC. |
PARTICIPANT |
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Print Name: |
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Print Name: |
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Title: |
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Date: |
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Date: |
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Employee Form
EXHIBIT A
TO STOCK OPTION GRANT NOTICE
STOCK OPTION AGREEMENT
Pursuant to the Grant Notice to which this Agreement is attached, the Company has granted to Participant an Option to purchase the number of Shares set forth in the Grant Notice.
general
1
Employee Form
Award of Option
2
Employee Form
(a) Cash or check; or
(b) With the consent of the Administrator, Shares (including Shares issuable pursuant to the exercise of the Award) or Shares held for such minimum period of time as may be established by the
3
Employee Form
Administrator, in each case, having a fair market value on the date of delivery equal to the aggregate payments required; or
(c) Delivery of a written or electronic notice that Participant has placed a market sell order with a broker acceptable to the Company with respect to Shares then issuable upon exercise or vesting of an Award, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate payments required; provided that payment of such proceeds is then made to the Company upon settlement of such sale; or
(d) With the consent of the Administrator, any other form of payment permitted under Section 10.1 of the Plan; or
(e) Any combination of the above permitted forms of payment.
4
Employee Form
Other Provisions
5
Employee Form
6
Employee Form
7
Employee Form
Section 3.21 Notification of Disposition. If this Option is designated as an Incentive Stock Option, Participant shall give prompt written notice to the Company of any disposition or other transfer of any Shares acquired upon exercise of the Option if such disposition or transfer is made (a) within two years from the Grant Date or (b) within one year after the transfer of such Shares to Participant. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by Participant in such disposition or other transfer.
* * * * *
8
Employee Form - RSU
ADVANTAGE SOLUTIONS INC.
2020 INCENTIVE AWARD PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
Advantage Solutions Inc., a Delaware corporation (the “Company”), pursuant to its 2020 Incentive Award Plan, as amended from time to time (the “Plan”), hereby grants to the holder listed below (“Participant”) the number of Restricted Stock Units set forth below (the “RSUs”). The RSUs are subject to the terms and conditions set forth in this Restricted Stock Unit Grant Notice (the “Grant Notice”), the Restricted Stock Unit Award Agreement attached hereto as Exhibit A, together with any Annexes thereto (the “Agreement”) and the Plan, each of which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in the Grant Notice and the Agreement.
Participant: |
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Grant Date: |
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Number of RSUs: |
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Type of Shares Issuable: |
Class A Common Stock |
Vesting Dates: |
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By Participant’s signature below, Participant agrees to be bound by the terms and conditions of the Plan, the Agreement and the Grant Notice. Participant has carefully reviewed the Plan, the Agreement and the Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing the Grant Notice and fully understands all provisions of the Plan, the Agreement and the Grant Notice. Participant understands and acknowledges that Participant is responsible for all taxes due with respect to the RSUs. Participant hereby agrees to accept as binding, conclusive and final all decisions and interpretations of the Administrator arising under the Plan, the Agreement and the Grant Notice.
ADVANTAGE SOLUTIONS INC. |
PARTICIPANT |
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Print Name: |
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Print Name: |
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Title: |
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Date: |
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Date: |
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Employee Form - RSU
EXHIBIT A
TO RESTRICTED STOCK UNIT GRANT NOTICE
RESTRICTED STOCK UNIT AWARD AGREEMENT
Pursuant to the Grant Notice to which this Agreement is attached, the Company has granted to Participant the number of RSUs set forth in the Grant Notice.
general
1
Employee Form - RSU
award of restricted stock UNITS
2
Employee Form - RSU
3
Employee Form - RSU
4
Employee Form - RSU
5
Employee Form - RSU
other provisions
6
Employee Form - RSU
7
Employee Form - RSU
* * * * *
8
PSU Form
ADVANTAGE SOLUTIONS INC.
2020 INCENTIVE AWARD PLAN
PERFORMANCE RESTRICTED STOCK UNIT GRANT NOTICE
Advantage Solutions Inc., a Delaware corporation (the “Company”), pursuant to its 2020 Incentive Award Plan, as amended from time to time (the “Plan”), hereby grants to the holder listed below (“Participant”) the target number of Performance Restricted Stock Units set forth below (the “PSUs”). The PSUs are subject to the terms and conditions set forth in this Performance Restricted Stock Unit Grant Notice (the “Grant Notice”), the Performance Restricted Stock Unit Award Agreement attached hereto as Exhibit A, together with any Annexes thereto (the “Agreement”), and the Plan, each of which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in the Grant Notice and the Agreement.
Participant: |
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Grant Date: |
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Number of PSUs (Target): |
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Type of Shares Issuable: |
Class A Common Stock |
Vesting Criteria: |
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Performance Criteria: |
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Performance Period |
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By Participant’s signature below, Participant agrees to be bound by the terms and conditions of the Plan, the Agreement and the Grant Notice. Participant has carefully reviewed the Plan, the Agreement and the Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing the Grant Notice and fully understands all provisions of the Plan, the Agreement and the Grant Notice. Participant understands and acknowledges that Participant is responsible for all taxes due with respect to the PSUs. Participant hereby agrees to accept as binding, conclusive and final all decisions and interpretations of the Administrator arising under the Plan, the Agreement and the Grant Notice.
ADVANTAGE SOLUTIONS INC. |
PARTICIPANT |
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Print Name: |
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Print Name: |
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Title: |
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Date: |
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Date: |
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PSU Form
EXHIBIT A
TO PERFORMANCE RESTRICTED STOCK UNIT GRANT NOTICE
PERFORMANCE RESTRICTED STOCK UNIT AWARD AGREEMENT
Pursuant to the Grant Notice to which this Agreement is attached, the Company has granted to Participant the target number of PSUs set forth in the Grant Notice.
general
1
PSU Form
award of PERFORMANCE RESTRICTED stock UNITS
Achievement Level |
Performance Criteria |
% of PSUs Earned |
No Payout |
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Threshold |
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Target |
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Maximum |
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Linear interpolation shall be used to determine the percent above the Threshold or below the Maximum in the event that a Performance Criterion falls between the percentages listed in the chart above. With respect to each Performance Criterion, performance below Threshold shall result in no payout to Participant with respect to the applicable portion of the PSUs, and performance above Maximum shall result in a payout capped at the Maximum with respect to the applicable portion of the PSUs. The Administrator shall have the sole authority to calculate Participant’s earned PSUs (including under Section 2.2(a)), which such calculation shall be final and binding.
2
PSU Form
3
PSU Form
4
PSU Form
5
PSU Form
6
PSU Form
other provisions
7
PSU Form
8
PSU Form
* * * * *
9
Non-Employee Director Form
ADVANTAGE SOLUTIONS INC.
2020 INCENTIVE AWARD PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
Advantage Solutions Inc., a Delaware corporation (the “Company”), pursuant to its 2020 Incentive Award Plan, as amended from time to time (the “Plan”), hereby grants to the holder listed below (“Participant”) the number of Restricted Stock Units set forth below (the “RSUs”). The RSUs are subject to the terms and conditions set forth in this Restricted Stock Unit Grant Notice (the “Grant Notice”), the Restricted Stock Unit Award Agreement attached hereto as Exhibit A (the “Agreement”) and the Plan, each of which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in the Grant Notice and the Agreement.
Participant: |
#ParticipantName# |
Grant Date: |
#GrantDate# |
Number of RSUs: |
#QuantityGranted# |
Type of Shares Issuable: |
Class A Common Stock |
Vesting Dates: |
As set forth in the Agreement |
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By Participant’s signature below, Participant agrees to be bound by the terms and conditions of the Plan, the Agreement and the Grant Notice. Participant has carefully reviewed the Plan, the Agreement and the Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing the Grant Notice and fully understands all provisions of the Plan, the Agreement and the Grant Notice. Participant understands and acknowledges that Participant is responsible for all taxes due with respect to the RSUs. Participant hereby agrees to accept as binding, conclusive and final all decisions and interpretations of the Administrator arising under the Plan, the Agreement and the Grant Notice.
ADVANTAGE SOLUTIONS INC. |
PARTICIPANT |
||
/s/ Bryce Robinson |
#Signature# |
||
Print Name: |
Bryce Robinson |
Print Name: |
#ParticipantName# |
Title: Date: |
Secretary #AcceptanceDate# |
Date: |
#AcceptanceDate# |
Non-Employee Director Form
EXHIBIT A
TO RESTRICTED STOCK UNIT GRANT NOTICE
RESTRICTED STOCK UNIT AWARD AGREEMENT
Pursuant to the Grant Notice to which this Agreement is attached, the Company has granted to Participant the number of RSUs set forth in the Grant Notice.
ARTICLE I.
GENERAL
Section 1.1 Defined Terms. Capitalized terms not specifically defined herein shall have the meanings specified in the Plan or the Grant Notice.
Section 1.2 Incorporation of Terms of Plan. The RSUs and the shares of Common Stock issued to Participant hereunder (“Shares”) are subject to the terms and conditions set forth in this Agreement and the Plan, which is incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.
ARTICLE II.
AWARD OF RESTRICTED STOCK UNITS
Section 2.1 Award of RSUs.
(a) In consideration of Participant’s past and continued service to the Company and for other good and valuable consideration, effective as of the Grant Date set forth in the Grant Notice, the Company has granted to Participant the number of RSUs set forth in the Grant Notice, upon the terms and conditions set forth in the Grant Notice, the Plan and this Agreement, subject to adjustment as provided in Section 12.2 of the Plan. Each RSU represents the right to receive one Share at the times and subject to the conditions set forth herein. However, unless and until the RSUs have vested, Participant will have no right to the payment of any Shares subject thereto. Prior to the actual delivery of any Shares, the RSUs will represent an unsecured obligation of the Company, payable only from the general assets of the Company.
(b) If, after the Grant Date set forth in the Grant Notice and prior to the distribution or payment in settlement of the RSUs, dividends with respect to the Shares are declared or paid by the Company, Participant shall be entitled to receive Dividend Equivalents in an amount, without interest, equal to the cumulative dividends declared or paid on a Share, if any, during such period multiplied by the number of RSUs to the extent such RSUs vest. Dividend Equivalents will be subject to the same terms and conditions of the Grant Notice and the Agreement applicable the RSUs. The Dividend Equivalents will be paid on the applicable date of distribution or payment in settlement of the underlying RSUs in cash or Shares, as determined by the Administrator in its discretion. If the underlying RSUs are forfeited or cancelled prior to the applicable date of distribution or payment in settlement of the underlying RSUs for any reason, any accrued and unpaid Dividend Equivalents related to forfeited or cancelled RSUs shall be forfeited and cancelled.
Non-Employee Director Form
Section 2.2 Vesting of RSUs.
(a) The RSUs shall vest on the earlier of (i) the day immediately preceding the date of the first annual meeting of the Company’s stockholders following the Grant Date set forth in the Grant Notice and (ii) the first anniversary of the Grant Date set forth in the Grant Notice, subject to Participant’s continued service to the Company through the Vesting Date (such earlier date, the “Vesting Date”).
(b) In the event Participant incurs a Termination of Service prior to the Vesting Date, except as may be otherwise provided herein or by the Administrator or as set forth in a written agreement between Participant and the Company, Participant shall immediately forfeit any and all then-unvested RSUs granted under this Agreement, and Participant’s rights in any such then-unvested RSUs shall lapse and expire.
(c) Notwithstanding the Grant Notice or the provisions of Section 2.2(a) and Section 2.2(b), in the event Participant incurs a Termination of Service due to death or Disability prior to the Vesting Date, the RSUs that are then unvested shall become vested in full on the date of such Termination of Service. The date of the Termination of Service shall be the “Vesting Date” for the purposes of this Agreement if this Section 2.2(c) is applicable.
(d) Notwithstanding the Grant Notice or the provisions of Section 2.2(a) and Section 2.2(b), in the event of a Change in Control prior to the Vesting Date, the RSUs that are then unvested shall become vested as follows as of the date of the Change of Control. For purposes of this Agreement, “Change in Control” shall mean a Change in Control (as defined under the Plan) that constitutes a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5).
Section 2.3 Distribution or Payment of RSUs.
(a) Participant’s RSUs to the extent vested shall be distributed in Shares (either in book-entry form or otherwise) promptly following the Vesting Date, but in all events prior to March 15 of the calendar year following the calendar year in which the Vesting Date occurs; provided, however, that in the event of a Change in Control where the RSUs are not assumed by the surviving company in such Change in Control, the RSUs may be cancelled in exchange for the right to receive a cash payment equal to the number of RSUs vested in accordance with Section 2.2 multiplied by the value of a Share as of such Change in Control as determined by the Administrator. Notwithstanding the foregoing, the Company may delay a distribution or payment in settlement of RSUs if it reasonably determines that such payment or distribution will violate federal securities laws or any other Applicable Law, provided that such distribution or payment shall be made at the earliest date at which the Company reasonably determines that the making of such distribution or payment will not cause such violation, as required by Treasury Regulation Section 1.409A-2(b)(7)(ii), and provided further that no payment or distribution shall be delayed under this Section 2.3(a) if such delay will result in a violation of Section 409A.
(b) All distributions of Shares shall be made by the Company in the form of whole Shares, and any fractional share shall be distributed in cash in an amount equal to the value of
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such fractional share determined based on the Fair Market Value as of the date immediately preceding the date of such distribution.
Section 2.4 Conditions to Issuance of Certificates. The Company shall not be required to issue or deliver any certificate or certificates for any Shares or to cause any Shares to be held in book-entry form prior to the fulfillment of all of the following conditions: (a) the admission of the Shares to listing on all stock exchanges on which such Shares are then listed, (b) the completion of any registration or other qualification of the Shares under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable, (c) the obtaining of any approval or other clearance from any state or federal governmental agency that the Administrator shall, in its absolute discretion, determine to be necessary or advisable, and (d) the receipt by the Company of full payment of any applicable withholding tax arising as a result of the issuance of the Shares.
Section 2.5 Tax Obligations. Participant shall be wholly responsible for the payment of all applicable federal, state and local taxes required by law to be paid with respect to any taxable event arising in connection with the RSUs.
Section 2.6 Rights as Stockholder. Neither Participant nor any Person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book-entry form) will have been issued and recorded on the records of the Company or its transfer agents or registrars and delivered to Participant (including through electronic delivery to a brokerage account). Except as otherwise provided herein, after such issuance, recordation and delivery, Participant will have all the rights of a stockholder of the Company with respect to such Shares, including, without limitation, the right to receipt of dividends and distributions on such Shares.
ARTICLE III.
OTHER PROVISIONS
Section 3.1 Administration. The Administrator, which for the purpose of this Award shall be the Committee, shall have the power to interpret the Plan, the Grant Notice and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan, the Grant Notice and this Agreement as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator will be final and binding upon Participant, the Company and all other interested Persons. To the extent allowable pursuant to Applicable Law, no member of the Committee or the Board will be personally liable for any action, determination or interpretation made with respect to the Plan, the Grant Notice or this Agreement.
Section 3.2 RSUs Not Transferable. The RSUs may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution, unless and until the Shares underlying the RSUs have been issued, and all restrictions applicable to such Shares have lapsed. No RSUs or any interest or right therein or part thereof shall be liable for the
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debts, contracts or engagements of Participant or Participant’s successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence. Notwithstanding the foregoing, with the consent of the Administrator, the RSUs may be transferred to Permitted Transferees, pursuant to such conditions and procedures the Administrator may require.
Section 3.3 Adjustments. The Administrator may accelerate the vesting of all or a portion of the RSUs in such circumstances as it, in its sole discretion, may determine. Participant acknowledges that the RSUs and the Shares subject to the RSUs are subject to adjustment, modification and termination in certain events as provided in this Agreement and the Plan, including Section 12.2 of the Plan.
Section 3.4 Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the Company’s principal office, and any notice to be given to Participant shall be addressed to Participant at Participant’s last address reflected on the Company’s records. By a notice given pursuant to this Section 3.4, either party may hereafter designate a different address for notices to be given to that party. Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service or similar foreign entity.
Section 3.5 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
Section 3.6 Governing Law. The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.
Section 3.7 Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice and this Agreement, are intended to conform to the extent necessary with all Applicable Laws, including, without limitation, the provisions of the Securities Act and the Exchange Act, and any and all regulations and rules promulgated thereunder by the Securities and Exchange Commission, and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the RSUs are granted, only in such a manner as to conform to Applicable Law. To the extent permitted by Applicable Law, the Plan, the Grant Notice and this Agreement, shall be deemed amended to the extent necessary to conform to Applicable Law.
Section 3.8 Amendment, Suspension and Termination. To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board, provided that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or
Non-Employee Director Form
termination of this Agreement shall adversely affect the RSUs in any material way without the prior written consent of Participant.
Section 3.9 Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth in Section 3.2 and the Plan, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
Section 3.10 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the RSUs, the Grant Notice and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by Applicable Law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
Section 3.11 No Right to Continued Service as a Director. Nothing in this Agreement or in the Plan shall confer upon Participant any right to continue to provide services to the Company as a Director.
Section 3.12 Entire Agreement. The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.
Section 3.13 Section 409A. The intent of the parties is that the payments and benefits under this Agreement comply with or be exempt from Section 409A and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.
Section 3.14 Agreement Severable. In the event that any provision of the Grant Notice or this Agreement is held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.
Section 3.15 Limitation on Participant’s Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. Participant shall have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the RSUs.
Section 3.16 Counterparts; Headings. The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to Applicable Law, each of which shall be deemed an original and all of which together shall constitute one instrument. The headings of sections and subsections are included solely for convenience of reference and shall not affect the meaning of the provisions of this Agreement.
Non-Employee Director Form
Section 3.17 Electronic Delivery. The Company may, in its sole discretion, deliver any documents related to current or future participation in the Plan by electronic means. By accepting this Agreement, Participant consents to receive such documents by electronic delivery and to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
Execution Version
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”), is dated as of February 1, 2023, by and between Advantage Solutions Inc., a Delaware corporation (the “Company”), and David Peacock (the “Executive”).
WHEREAS, the Company and the Executive previously entered into that certain Employment Agreement dated as of January 16, 2023 (the “Prior Agreement”);
WHEREAS, the Company and the Executive desire to amend and restate the terms of the Prior Agreement as set forth herein; and
WHEREAS, it is the desire of Executive to continue to provide services to the Company on and after the Effective Date on the terms herein provided.
NOW, THEREFORE, in consideration of the promises and mutual agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows:
with Executive’s employment with the Company, Executive will not use any confidential or proprietary information Executive may have obtained in connection with employment with any prior employer; (c) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of the Executive, enforceable in accordance with its terms; and (d) the Executive does not have any interest in any intangible asset including, without limitation, intellectual property, goodwill, trade secrets, and general know-how, used in, or useful to the Company’s business.
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or committees (whether or not the Executive receives any compensation therefor) without the prior written consent of the Company.
time in effect (the “Payroll Policies”), less such amounts as may be required to be withheld by applicable federal, state, and local law and regulations or otherwise elected by the Executive to be withheld. The Base Salary may only be reduced as part of a reduction in the base salary of all executive officers of the Company, and in no event may the Base Salary be reduced below ninety percent (90%) of the Base Salary provided for in this Agreement.
compensation committee of the Board (the “Compensation Committee”), based on performance metrics to be established by the Board or the Compensation Committee in its discretion following consultation with the Executive. Executive may be eligible for a maximum bonus opportunity as approved in writing from time to time by the Board or the Compensation Committee; provided, that, notwithstanding the foregoing, the Executive’s annual bonus with respect to 2023 shall be no less than 150% of the Executive’s Base Salary (i.e., $1,650,000). If Executive earns a bonus in accordance with the Executive Bonus Plan,
Executive’s bonus will be paid in the calendar year immediately following the year to which the bonus relates, on or about March 15 of such year, or, if later, as soon as practicable following the completion of the Company’s audited financial statements for the year to which the bonus relates, and in no event later than December 31 of the calendar year immediately following the year to which the bonus relates.
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(the “Plan”), a number of shares of common stock of the Company (the “Signing Shares”) equal to the ratio of (1) $3,000,000 to (2) the closing price per share of common stock on the Effective Date. In the event that Executive resigns his employment with the Company without Good Reason (as defined below) or is terminated by the Company for Cause (as defined below) on or prior to the twelve (12)-month anniversary of the Effective Date, then Executive hereby agrees to forfeit all of the Signing Shares (less any Signing Shares withheld to satisfy any tax withholding obligations) for no consideration (or, if Executive has sold any of the Signing Shares prior to such anniversary, repay to the Company the amount received by Executive in such sale) no later than thirty (30) days after the date of such resignation or termination of employment with the Company. Executive hereby authorizes the Company to immediately offset against and reduce any amounts otherwise due to Executive for any amounts in respect of the obligation to forfeit or repay the Signing Shares. For the avoidance of doubt, if Executive is terminated without Cause or resigns for Good Reason, Executive does not have to forfeit or repay any of the Signing Shares. The Company hereby agrees that the Executive will have the right to satisfy any tax withholding obligations resulting from the issuance of such Signing Shares through a sell-to-cover or share withholding arrangement, based on maximum applicable statutory tax rates.
$3,000,000.
be determined by the Committee after the end of the one-year performance period ending December 31, 2023. PSUs (x) at or below the target level of performance that are earned at the end of the performance period shall vest with respect to 33-1/3% of the shares of
common stock of the Company (each, a “Share”) earned thereunder on each of the first three anniversaries of the Effective Date and (y) any additional Shares that may be earned based on achievement above target level of performance (and are not forfeited in accordance with the terms of the Plan and related award agreement) shall vest on the third anniversary of the Effective Date, subject, in each case, to the Executive’s continued employment with the Company through the applicable vesting date.
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terms and conditions of the issuing company’s organizational documents, any applicable plan documents, and individual award agreements, as such documents and agreements may be amended from time to time.
the Executive’s continued employment with the Company to the applicable date, provided that the Options will become fully vested upon the earlier to occur of (i) the first date on which the Partners (as defined below) have sold Units (as defined below) with an aggregate value of not less than $2,100,000,000 at an average price corresponding to not less than $10.00 per Share (either directly or following an exchange of Units for Shares) and (ii) a Change in Control (as defined in the Plan). The Options shall have an exercise price of (1) $2.50, with respect to 2,000,000 of the Options; (2) $5.00, with respect to 2,750,000 of the Options; and (3) $10.00, with respect to 3,250,000 of the Options; provided, however, that in no event shall any of the Options be granted with an exercise price that is less than the fair market value of a Share on the date of grant. In all other respects, the Options shall be subject to the terms and conditions of the Plan, the applicable Option award agreement, and the other documents governing the Options. For purposes of this Section 5(d)(iv), each of “Partners” and “Units” shall have the meaning set forth in the Eighth Amended and Restated Agreement of Limited Partnership for Karman Topco L.P., dated as of September 7, 2020, as may be further amended and restated from time to time.
Company shall be entitled to amend, modify or terminate any such plans (collectively, the “Benefit Plans”). Further, the Company’s maintaining any or all of the Benefit Plans for senior executives consistent with current levels shall be subject to review and approval of the Compensation Committee.
performance of the Executive’s job duties and the interests of the Company. Notwithstanding this
provision, the Executive shall be eligible for sick time in accordance with the Company’s sick time policy
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and entitled to any leave of absence for which the Executive would otherwise be eligible in accordance with Company policy or any applicable local, state, or federal law.
during the Term (a “Disability”), the Company may terminate the Executive’s employment hereunder. In order to assist the Company in making a Disability determination, the Executive shall, as reasonably requested by the Company, (A) make the Executive available for medical examinations by one or more physicians chosen by the Company and reasonably acceptable to the Executive; and (B) to the extent reasonably necessary to make such determination, grant to the Company and any such physicians access to all relevant medical information concerning the
Executive, arrange to furnish copies of the Executive’s medical records to the Company, and use the Executive’s best efforts to cause the Executive’s own physicians to be available to discuss the Executive’s health with the Company and the Company will keep such records and information confidential except as reasonably necessary to make such determination. If the Executive dies during the Term, the Executive’s employment hereunder shall automatically terminate as of the
close of business on the date of Executive’s death.
entitled to receive: (A) the Executive’s Base Salary then in effect at such the time of termination, through the date of termination; (B) reimbursement for any unreimbursed business expenses properly incurred by the Executive in accordance with Section 5(e); (C) employee benefits that Executive was receiving at such time through the date of termination; (D) the opportunity to elect benefits continuation post-employment, which opportunity the Executive may be entitled under the Benefit Plans as of the date of such termination pursuant to the terms thereof (the amounts
described in clauses (A) through (D) hereof being referred to as the “Accrued Rights”); and (E) any bonus earned, but unpaid, as of the date of termination for the immediately preceding fiscal year (“Accrued Bonus”).
subject to Section 6(f), pay to the Executive or the Executive’s legal representative the Executive’s Base Salary then in effect at the time of such termination for twelve (12) months following such termination, less any amounts received by the Executive under the Company’s disability policies, if applicable. Such payments will be made in equal installments over such twelve (12)-month period in accordance with the Payroll Policies. The Executive will also, in the case of a termination for Disability, be entitled to a lump sum cash payment of $36,000, subject to applicable taxes and withholdings, which amount may be used by the Executive to pay for health
insurance premiums under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) or other continuation health care coverage, in the Executive’s sole discretion.
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compensation or any other benefits with respect to the Executive’s employment with the Company except as set forth in this Section 6(b). The Company shall have “Cause” for termination of the Executive’s employment if any of the following has occurred:
Executive’s duties hereunder, which dishonesty or gross negligence, if curable in the reasonable determination of the Company, is not cured within 10 calendar days after a written notice specifying such dishonesty or gross negligence is received by the Executive from the Company;
Executive’s employment for Good Reason (as defined below) if Executive provides three (3) months prior written notice to the Company, which notice period may be reduced by the Company upon receipt of such notice. If the Executive’s employment is terminated by the Company without Cause or by the Executive with Good Reason during the Term, the Executive shall be entitled to receive the Accrued Rights, any Accrued Bonus and, subject to Section 6(e), the additional benefits provided in this Section 6(c).
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Notwithstanding the foregoing, the Executive shall not have “Good Reason” to terminate the Executive’s employment in connection with any of the foregoing events unless (1) Executive provides the Company with three (3) months prior written notice of such termination, and such notice is provided within ninety
(90) days of the initial occurrence of the event constituting Good Reason; (2) such termination is conditioned upon the Company failing to cure the event constituting Good Reason within the thirty (30)- day period following provision of notice; and (3) the Company fails to cure such event constituting Good Reason within such thirty (30)-day period.
compliance with the Executive’s obligations under this Agreement and the Restrictive Covenant(s). In the event that the Executive breaches the Executive’s obligations hereunder or under the Restrictive
Covenant(s), any and all payments or benefits provided for in Sections 6(a) or 6(c) shall cease immediately.
the Executive’s sole and exclusive remedy in the case of termination and shall, as liquidated damages or severance pay or both, be considered for all purposes in lieu of any other rights or remedies, at law or in equity, which the Executive may have in the case of such termination.
materials relating to Executive’s employment, including tools, documents, papers, computer software, and passwords and other identification materials. This obligation applies to all materials relating to the affairs of the Company or any of its customers, clients, vendors, or agents that may be in Executive’s possession or control.
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affiliates; or (b) make any other statement which would be reasonably expected to (i) impair the goodwill or reputation of the Company, or (ii) impair the goodwill or reputation of any products or services offered by the Company or any of its affiliates. For the avoidance of doubt, the foregoing shall not prohibit the Executive during the Term from discharging Executive’s duties by providing constructive criticism to Executive’s peers and superiors within the Company concerning the Company’s products and services for the purpose of improving their quality and efficiency or from responding to a valid subpoena, or other form of legal process.
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Advantage Solutions Inc.
15310 Barranca Parkway, Suite 100
Irvine, CA 92618 Attn: General Counsel
part) to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the Total Payments shall be reduced (in the order provided in Section 11(b) below) to the minimum extent necessary to avoid the imposition of the Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state, and local income and employment taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state, and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).
which Executive’s right to the Total Payments is triggered, if applicable, or such other time as requested by Executive (provided, that Executive reasonably believes that any of the Total Payments may be subject to the Excise Tax) or the Company. The costs of obtaining such determination and all related fees and expenses (including related fees and expenses incurred in any later audit) shall be borne by the Company. Any good faith determinations of the Independent Adviser made hereunder shall be final, binding, and conclusive upon the Company and Executive.
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except to the extent the Company reasonably determines would result in the imposition of an excise tax under Section 409A of the Code.
(ii) if Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Executive may disclose the trade secret to Executive’s attorney, and may use the trade secret information in the court proceeding, if Executive files any document containing the trade secret under seal, and does not disclose the trade secret, except pursuant to court order.
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although the obligations of the Executive are personal and may be performed only by the Executive. The Company may assign this Agreement and its rights and interests, together with its obligations, hereunder
(a) in connection with any sale, transfer, or other disposition of all or substantially all of its assets or business(es), whether by merger, consolidation or otherwise; or (b) to any wholly owned subsidiary of the Company; or (c) as collateral to one or more lenders of the Company or its subsidiaries or affiliates. This Agreement shall also be binding upon and inure to the benefit of the Company and its subsidiaries, successors, and assigns, and the rights of the Company hereunder are enforceable by its subsidiaries or affiliates, which are the intended third party beneficiaries hereof and no other third party beneficiary is so otherwise intended.
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[signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written
above.
ADVANTAGE SOLUTIONS INC.
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David Peacock |
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[Signature page to Amended and Restated Employment Agreement]
EXHIBIT A
PERMITTED BOARD ACTIVITIES
The Executive shall be permitted to maintain membership on the boards of directors of one publicly traded company one privately held company, and any number of non-profit organizations, in each case subject to the approval of the Board, which approval shall not be unreasonable withheld, conditioned, or delayed; provided, that the Executive’s continued membership on the board of directors of Stifel Financial Corp. shall be considered approved by the Board for purposes of this Exhibit A (as the Executive’s one publicly traded board).
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EXHIBIT B
SEPARATION AGREEMENT AND GENERAL RELEASE
This Separation Agreement and General Release (the “Agreement”) is entered into by and between David Peacock (“Employee”), on the one hand, and Advantage Solutions Inc., a Delaware corporation (the “Company”), on the other hand.
WHEREAS, Company employed Employee pursuant to that certain Amended and Restated Employment Agreement dated as of February 1, 2023, as amended or otherwise modified from time to time (the “Employment Agreement”);
WHEREAS, Employee’s employment and all of Employee’s positions with Company and its subsidiaries and affiliates terminated effective [DATE] (the “Termination Date”);
WHEREAS, Employee seeks to obtain the payments and benefits provided under the Employment Agreement;
WHEREAS, Employee acknowledges that Employee has received all accrued wages, bonus, vacation/paid time off, and any other compensation due as of the Termination Date; provided, however, that Employee understands Employee may subsequently receive a separate check for reimbursement of reasonable business expenses in accordance with Company policies; and
WHEREAS, capitalized terms used, but not defined in this Agreement, shall have the meanings ascribed to such terms in the Employment Agreement.
NOW, THEREFORE, in an effort to put any and all disputes behind the parties, for and in consideration of the mutual covenants contained herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties have agreed to settle finally and forever any and all claims between them of any nature whatsoever relating to or arising from Employee’s employment by Company and/or the termination of that employment.
thereafter be effective as of the date such revocation period terminates without exercise (the “Effective Date”).
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unconditionally releases, and fully and forever discharges and absolves Company, its parents, subsidiaries, and affiliates (“Advantage Companies”) and each of their respective partners, officers, directors, managers, shareholders, members, agents, employees, heirs, divisions, attorneys, trustees, administrators, executors, representatives, predecessors, successors, assigns, related organizations, and related employee benefit plans (collectively, the “Company Releasees”), of, from and for any and all claims, rights, causes of action, demands, damages, rights, remedies, and liabilities of whatsoever kind or character, in law or equity, known or unknown, suspected or unsuspected, past, present, or future, that the Employee Releasors have ever had, may now have, or may later assert against the Company Releasees whether or not arising out of or related to Employee’s employment with Company or the termination of Employee’s employment by Company (hereinafter referred to as “Employee’s Released Claims”), from the beginning of time up to and including the Effective Date, including without limitation, any claims, debts, obligations, and causes of action of any kind arising under any (i) contract including but not limited to the Employment Agreement and any bonus or other compensation plan, (ii) any common law (including but not limited to any tort claims), or (iii) any federal, state, or local statutory law including, without limitation, any law which prohibits discrimination or harassment on the basis of sex, race, national origin, veteran status, age, immigration, or marital status, sexual orientation, disability, or on any other basis, including without limitation, those arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Older Workers’ Benefit Protection Act, the Americans with Disabilities Act, the Employee Retirement Income Security Act, any state or local wage and hour laws (to the fullest extent permitted by law), and/or any state or local laws which prohibit discrimination or harassment of any kind, including, without limitation, the California Family Rights Act and the California Fair Employment and Housing Act; provided, however, that Employee’s release does not waive, release, or otherwise discharge any claim or cause of action that cannot legally be waived, including, but not limited to, any claim for workers’ compensation benefits and unemployment benefits.
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warranty) to dismiss forthwith any such proceedings initiated to date. Employee shall not bring any complaint, claim, charge, action, or proceeding to challenge the validity of this Agreement or encourage any other person or persons in doing so. Notwithstanding the foregoing, nothing herein shall prevent Employee from filing or from cooperating in any charge filed with a governmental agency; provided, however, Employee acknowledges and agrees that Employee waiving the right to any monetary recovery should any agency (such as the Equal Opportunity Commission or any similar state or local agency) pursue any claim for Employee’s benefit. Further, nothing herein shall prevent Employee from challenging the
validity of the release of Employee’s claims, if any, under the Age Discrimination in Employment Act.
“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, AND THAT IF KNOWN BY HIM OR HER WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”
But for the obligations arising from this Agreement, having reviewed this provision, Employee nevertheless hereby voluntarily waives and relinquishes any and all rights or benefits Employee may have under section 1542, or any other statutory or non-statutory law of similar effect. Thus, Employee expressly acknowledges this Agreement is intended to and does include in its effect, without limitation, all claims Employee does not know or suspect to exist in Employee’s favor at the time of signing this Agreement, and that this Agreement extinguishes any such claims. Employee warrants that Employee has consulted counsel and/or has had the opportunity to consult with counsel about this Agreement and specifically about the waiver of section 1542 (or other state law of similar effect) and that Employee understands the section 1542 (or other state law of similar effect) waiver and freely and knowingly enters
into this Agreement. Employee acknowledges that Employee may later discover facts different from or in addition to those Employee now knows or believes to be true regarding the matters released or described in this Agreement, and even so, Employee agrees that the releases contained in this Agreement shall remain effective in all respects notwithstanding any later discovery of any different or additional facts.
confidential information, records, electronically stored data, and other materials relating to Employee’s employment, including tools, documents, papers, computer software, passwords, and other identification materials, ID cards, keys, credit cards, personal computers, tablets, cell phones, and/or instruction manuals. This obligation applies to all materials relating to the affairs of the Company or any of its customers, clients, vendors, employees, or agents that may be in Employee’s possession or control. All such Company property must be returned by Employee in order for Employee to commence receiving the Severance Pay and Severance Benefits provided under Section 2 hereof.
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injuries or damages in the course and scope of Employee’s employment with the Company that Employee did not already report to the Company; (b) fully understands all terms of this Agreement and is signing it voluntarily and with full knowledge of its significance; and (c) is not relying and has not relied upon any representation or statement made by the Company or its agents, representatives, or attorneys, with regard to the subject matter, basis, or effect of this Agreement or otherwise, other than as specifically stated in this Agreement.
As to Employee:
[ ● ]
As to Company:
Advantage Solutions Inc.
15310 Barranca Parkway, Suite 100
Irvine, CA 92618 Attn: General Counsel
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understands and agrees that Employee does so voluntarily and is waiving the balance of the twenty-one (21)-day period; and
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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.
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May 10, 2023 |
By: |
/s/ David Peacock |
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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.
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May 10, 2023 |
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/s/ Christopher Growe |
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Christopher Growe |
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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, 2023, 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.
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May 10, 2023 |
By: |
/s/ David Peacock |
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David Peacock |
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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, 2023, 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.
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May 10, 2023 |
By: |
/s/ Christopher Growe |
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Christopher Growe |
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Chief Financial Officer (Principal Financial Officer) |