Advantage Solutions Inc. (NASDAQ: ADV) (“Advantage,” the “Company,”
“we” or “our”), the leading provider of outsourced sales and
marketing services to consumer goods manufacturers and retailers,
today reported financial results for its fiscal third quarter ended
September 30, 2020.
“We are excited to begin Advantage’s next chapter as a public
company,” said Tanya Domier, Chief Executive Officer of Advantage.
“Despite the difficult operating environment brought on by
COVID-19, I am pleased with the progress we continue to make in
building the business for the long-term. While portions of our
business continue to experience temporary headwinds from the
pandemic, we’ve never been more important and valuable partners to
our clients and customers than we are today. The impact from
COVID-19 remained a significant short-term headwind for our
business in the third quarter, but we are pleased with improving
momentum in the quarter and believe it represents the beginning of
a recovery from COVID-19 lows,” Domier commented. “The sequential
revenue improvement we saw in the third quarter versus our second
quarter was broad-based across both the sales and marketing
segments and was primarily driven by the beginning of a recovery in
the parts of our business most negatively impacted by COVID-19, as
well as by continued strength in the other businesses that have
remained critical to clients during the pandemic.”
“Importantly, I’d like to thank our associates. I couldn’t be
more proud of the team’s passion and performance during this
challenging time. Our associates have worked tirelessly in-stores
and at-home to serve clients, customers and communities with
critical solutions that help brands and retailers meet today’s
evolving needs, providing best-in-class execution and service. We
are grateful that we’re able to support communities in need during
these trying times by making sure food and essential products from
our brand and retailer partners are available to consumers in-store
and online,” Domier added.
Third Quarter 2020 Highlights
- Revenues were $784.3 million for the third quarter of 2020,
representing a decline of $197.3 million, or 20.1%, from the same
period in 2019, but sequential growth of $142.8 million, or 22.3%,
from the second quarter of 2020.
- Operating income was $88.6 million for the third quarter of
2020, representing growth of $12.0 million, or 15.7%, from the same
period in 2019.
- Net income was $36.7 million for the third quarter of 2020,
representing growth of $14.0 million, or 61.5%, from the same
period in 2019.
- Adjusted Net Income was $65.6 million for the third quarter of
2020, representing a decline of $0.2 million, or 0.3%, from the
same period in 2019.
- Adjusted EBITDA was $136.3 million for the third quarter of
2020, representing a decline of $8.6 million, or 5.9%, from the
same period in 2019.
Third quarter 2020 revenues declined $197.3 million, or 20.1%,
to $784.3 million compared to $981.7 million for the third quarter
of 2019. The year-over-year decline in revenue was driven by a
$236.1 million decline in the marketing segment, partially offset
by $38.7 million of growth in the sales segment. The third
quarter’s decline in the marketing segment was primarily the result
of the temporary suspension of the Company’s in-store sampling
business in response to the COVID-19 pandemic. While in-store
sampling programs began to return to stores in the third quarter of
2020, the business is still early in its return to full-operation
and remains materially below 2019 levels.
Importantly, however, third quarter revenue of $784.3 million
represented a sequential improvement of $142.8 million, or 22.3%,
over the second quarter of 2020. This improvement was primarily
driven by the beginning of a recovery in business units
experiencing temporary headwinds from the COVID-19 pandemic,
including the food service and international joint venture
operations in the sales segment and the in-store sampling
operations in the marketing segment.
Third quarter 2020 operating income grew $12.0 million, or
15.7%, to $88.6 million compared to $76.5 million for the third
quarter of 2019. The year-over-year growth in operating income was
driven by revenue growth in the sales segment, the benefit from the
favorable settlement of lease liability obligations, the change in
fair value adjustments related to contingent consideration
arrangements from previous acquisitions and the decrease in costs
associated with the exit of a previously acquired business,
partially offset by the decline in revenues in the marketing
segment related to the temporary suspension of in-store sampling
programs during the pandemic.
Third quarter 2020 net income grew $14.0 million, or 61.5%, to
$36.7 million compared to $22.7 million for the third quarter of
2019. The year-over-year growth in net income was primarily driven
by higher operating income and lower interest expense, partially
offset by a higher provision for income taxes.
Third quarter 2020 Adjusted Net Income declined $0.2 million, or
0.3%, to $65.6 million compared to $65.8 million for the third
quarter of 2019. The year-over-year decline in Adjusted Net Income
was primarily driven by the decline in revenues in the marketing
segment related to the temporary suspension of in-store sampling
programs during the pandemic, partially offset by the decrease in
interest expense.
Third quarter 2020 Adjusted EBITDA declined $8.6 million, or
5.9%, to $136.3 million compared to $144.9 million for the third
quarter of 2019. The year-over-year decline in Adjusted EBITDA was
primarily driven by the declines in the marketing segment related
to the temporary suspension of in-store sampling programs during
the pandemic, partially offset by growth in the sales segment.
Successful Business Combination and
Balance Sheet Highlights
Advantage Solutions and Conyers Park II Acquisition Corp.
(“Conyers Park”), a publicly traded special purpose acquisition
company, successfully completed their business combination on
October 28, 2020. Proceeds from the business combination and the
related PIPE and debt refinancing transactions were primarily used
to repay the existing borrowings of the Company.
As of September 30, 2020, the Company’s cash and cash
equivalents balance was $486 million, total debt was $3,331 million
and Net Debt was $2,845 million. In connection with the closing of
the merger with Conyers Park II, the Company completed its
previously announced debt refinancing. Net Debt outstanding was
reduced to approximately $2 billion. The post-combination debt
capitalization consists primarily of a $400 million new revolving
credit facility, under which $100 million was outstanding after the
close of the business combination, a $1,325 million new first lien
term loan facility, and $775 million of new senior secured
notes.
The Class A Common Stock of Advantage Solutions began trading
under the ticker symbol “ADV” on the NASDAQ exchange on October 29,
2020. After completion of the business combination, there were
313,425,182 Class A Common shares outstanding. This share count
excludes 5,000,000 performance shares issued as part of the
business combination that remain subject to vesting upon
satisfaction of a market performance condition that has yet to be
met and 18,583,333 warrants that carry an $11.50 exercise
price.
FY 2020 Outlook
The Company now expects full year 2020 Adjusted EBITDA in the
range of $480 to $485 million, an increase from the $475 million it
previously provided as part of the business combination investor
presentations in connection with the recently completed merger. The
increase to forecasted Adjusted EBITDA reflects the expectation
that strength in the sales segment continues through the fourth
quarter and that the marketing segment continues to gradually
recover from COVID-related headwinds. It now expects full year 2020
revenues to decline 16% to 19% versus 2019 revenues of $3,785
million. This slight revision to the forecast revenues is primarily
due to a change in the expected mix of marketing revenues that
would not impact the Company’s earnings estimates. For the purpose
of this 2020 outlook update, the Company assumed the current trends
in the business continue as they have for the last several months
and there is no significant change to how COVID-19 is currently
expected to impact the Company in the fourth quarter.
The Company expects to provide 2021 guidance on its fourth
quarter earnings call to be scheduled for early next year.
Conference Call Details
Advantage will host a conference call at 5:00 p.m. ET on
November 16 to discuss the third quarter financial performance and
business outlook. To participate, please dial (877) 300-8521 within
the United States or (412) 317-6026 outside the United States
approximately 10 minutes before the scheduled start of the call.
The conference ID for the call is 10149859. The conference call
will also be accessible, live via audio broadcast, on the Investor
Relations section of the Advantage website at
https://ir.advantagesolutions.net/
A replay of the conference call will be available online at
https://ir.advantagesolutions.net/. In addition, an audio replay of
the call will be available for one week following the call and can
be accessed by dialing (844) 512-2921 within the United States or
(412) 317-6671 outside the United States. The replay ID is
10149859.
About Advantage Solutions
Advantage Solutions is a leading business solutions provider
committed to driving growth for consumer goods manufacturers and
retailers through winning insights and execution. Advantage’s data
and technology-enabled omnichannel solutions — including sales,
retail merchandising, business intelligence, digital commerce and a
full suite of marketing services — help brands and retailers across
a broad range of channels drive consumer demand, increase sales and
achieve operating efficiencies. Headquartered in Irvine,
California, Advantage has offices throughout North America and a
presence in select markets throughout Africa, Asia, Australia and
Europe through which it services the global needs of multinational,
regional and local manufacturers. For more information, please
visit advantagesolutions.net.
Forward-Looking Statements
Certain statements in this press release may be considered
forward-looking statements within the meaning of the federal
securities laws, including statements regarding the expected future
performance of Advantage's business. Forward-looking statements
generally relate to future events or Advantage’s future financial
or operating performance. These forward-looking statements
generally are identified by the words “may”, “should”, “expect”,
“intend”, “will”, “would”, “estimate”, “anticipate”, “believe”,
“predict”, “potential” or “continue”, or the negatives of these
terms or variations of them or similar terminology. Such
forward-looking statements are predictions, projections and other
statements about future events that are based on current
expectations and assumptions and, as a result, are subject to
risks, uncertainties, and other factors which could cause actual
results to differ materially from those expressed or implied by
such forward looking statements.
Factors that may cause actual results to differ materially from
current expectations include, but are not limited to, the COVID-19
pandemic and the measures taken in response thereto; changes to
labor laws or wage or job classification regulations, including
minimum wage, or other market-driven wage changes; Advantage’s
ability to continue to generate significant operating cash flow;
client procurement strategies and consolidation of Advantage’s
clients’ industries creating pressure on the nature and pricing of
its services; consumer goods manufacturers and retailers reviewing
and changing their sales, retail, marketing, and technology
programs and relationships; Advantage’s ability to successfully
develop and maintain relevant omni-channel services for our clients
in an evolving industry and to otherwise adapt to significant
technological change; Advantage’s ability to effectively remediate
material weaknesses and maintain proper and effective internal
controls in the future; potential and actual harms to Advantage’s
business arising from the Take 5 Matter; Advantage’s substantial
indebtedness and our ability to refinance at favorable rates; and
other risks and uncertainties set forth in the section titled “Risk
Factors” in the definitive proxy statement filed by the Company
with the Securities and Exchange Commission (the “SEC”) on October
9, 2020 and in its other filings made from time to time with the
SEC. These filings identify and address other important risks and
uncertainties that could cause actual events and results to differ
materially from those contained in the forward-looking statements.
Forward-looking statements speak only as of the date they are made.
Readers are cautioned not to put undue reliance on forward-looking
statements, and Advantage assumes no obligation and does not intend
to update or revise these forward-looking statements, whether as a
result of new information, future events, or otherwise, except as
required by law.
Non-GAAP Financial Measures
and Related Information
This press release includes certain financial measures not
presented in accordance with generally accepted accounting
principles (“GAAP”), including EBITDA for economic interests in
investments, Adjusted EBITDA, Adjusted Net income and Net Debt.
These are not measures of financial performance in accordance with
GAAP and may exclude items that are significant in understanding
and assessing the Advantage’s financial results. Therefore, the
measures are in addition to, and not a substitute for or superior
to, measures of financial performance prepared in accordance with
GAAP, and should not be considered in isolation or as an
alternative to net income, cash flows from operations or other
measures of profitability, liquidity or performance under GAAP. You
should be aware that Advantage’s presentation of these measures may
not be comparable to similarly-titled measures used by other
companies. Reconciliations of historical non-GAAP measures to their
most directly comparable GAAP counterparts are included below.
Advantage believes these non-GAAP measures provide useful
information to management and investors regarding certain financial
and business trends relating to Advantage’s financial condition and
results of operations. Advantage believes that the use of Adjusted
EBITDA, Adjusted Net Income and Net Debt provides an additional
tool for investors to use in evaluating ongoing operating results
and trends in and in comparing the Advantage’s financial measures
with other similar companies, many of which present similar
non-GAAP financial measures to investors. Non-GAAP financial
measures are subject to inherent limitations as they reflect the
exercise of judgments by management about which expense and income
are excluded or included in determining these non-GAAP financial
measures. Additionally, other companies may calculate non-GAAP
measures differently, or may use other measures to calculate their
financial performance, and therefore Advantage’s non-GAAP measures
may not be directly comparable to similarly titled measures of
other companies.
Adjusted EBITDA means net income (loss) 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) private equity
sponsors’ management fees and equity-based compensation expense,
(vii) fair value adjustments of contingent consideration related to
acquisitions, (viii) acquisition-related expenses, (ix) costs
associated with COVID-19, net of benefits received, (x) EBITDA for
economic interests in investments, (xi) restructuring expenses,
(xii) litigation expenses, (xiii) (Recovery from) loss on Take 5,
(xiv) costs associated with the Take 5 Matter and (xv) other
adjustments that management believes are helpful in evaluating our
operating performance.
Adjusted Net Income means net (loss) income before (i)
impairment of goodwill and indefinite-lived assets, (ii)
amortization of intangible assets, (iii) private equity sponsors’
management fees and equity-based compensation expense, (iv) fair
value adjustments of contingent consideration related to
acquisitions, (v) acquisition-related expenses, (vi) costs
associated with COVID-19, net of benefits received, (vii) EBITDA
for economic interests in investments, (viii) restructuring
expenses, (ix) litigation expenses, (x) (Recovery from) loss on
Take 5, (xi) costs associated with the Take 5 Matter, (xii) other
adjustments that management believes are helpful in evaluating our
operating performance, and (xiii) related tax adjustments.
Net Debt represents the sum of current portion of long-term debt
and long-term debt, less cash and cash equivalents and debt
issuance costs. With respect to Net Debt, cash and cash equivalents
are subtracted from the GAAP measure, total debt, because they
could be used to reduce the debt obligations.
This press release also includes certain estimates and
projections of Adjusted EBITDA, including with respect to expected
fourth quarter 2020 results. Due to the high variability and
difficulty in making accurate estimates and projections of some of
the information excluded from Adjusted EBITDA, together with some
of the excluded information not being ascertainable or accessible,
Advantage is unable to quantify certain amounts that would be
required to be included in the most directly comparable GAAP
financial measures without unreasonable effort. Consequently, no
disclosure of estimated or projected comparable GAAP measures is
included and no reconciliation of such forward-looking non-GAAP
financial measures is included.
Reconciliation of GAAP to Non-GAAP Historical Financial
Measures
Results of Operations for the Three Months Ended
September 30, 2020 and 2019
|
Three Months Ended September 30, |
|
|
(amounts in
thousands) |
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
784,345 |
|
|
100.0 |
% |
|
$ |
981,682 |
|
|
100.0 |
% |
|
Cost of revenues |
|
625,363 |
|
|
79.7 |
% |
|
|
809,243 |
|
|
82.4 |
% |
|
Selling, general, and
administrative expenses |
|
11,855 |
|
|
1.5 |
% |
|
|
38,042 |
|
|
3.9 |
% |
|
Depreciation and
amortization |
|
58,556 |
|
|
7.5 |
% |
|
|
57,872 |
|
|
5.9 |
% |
|
Total expenses |
|
695,774 |
|
|
88.7 |
% |
|
|
905,157 |
|
|
92.2 |
% |
|
Operating income |
|
88,571 |
|
|
11.3 |
% |
|
|
76,525 |
|
|
7.8 |
% |
|
Interest expense, net |
|
48,243 |
|
|
6.2 |
% |
|
|
57,762 |
|
|
5.9 |
% |
|
Income (loss) before income
taxes |
|
40,328 |
|
|
5.1 |
% |
|
|
18,763 |
|
|
1.9 |
% |
|
Provision for (benefit from) income taxes |
|
3,623 |
|
|
0.5 |
% |
|
|
(3,968 |
) |
|
(0.4 |
)% |
|
Net income (loss) |
$ |
36,705 |
|
|
4.7 |
% |
|
$ |
22,731 |
|
|
2.3 |
% |
|
Other Financial
Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net Income(1) |
$ |
65,607 |
|
|
8.4 |
% |
|
$ |
65,825 |
|
|
6.7 |
% |
|
Adjusted EBITDA(2) |
$ |
136,253 |
|
|
17.4 |
% |
|
$ |
144,862 |
|
|
14.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
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 most directly comparable
measure presented on a GAAP basis. |
|
|
(2 |
) |
We present Adjusted EBITDA
because it is a key operating measure used by us to assess our
financial performance. This measure adjusts 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 this
measure in conjunction with our results according to GAAP because
we believe it provides 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. Adjusted EBITDA should not be considered as an
alternative for our most directly comparable measure presented on a
GAAP basis. |
A reconciliation of net income (loss) to Adjusted Net Income is
provided in the following table:
Consolidated |
Three Months Ended September 30, |
|
2020 |
|
|
2019 |
|
(in
thousands) |
|
|
|
|
|
Net income (loss) |
$ |
36,705 |
|
|
$ |
22,731 |
|
Less: net income attributable to
noncontrolling interests |
|
756 |
|
|
|
142 |
|
Add: |
|
|
|
|
|
Sponsors’ management fee and
equity-based compensation expense(a) |
|
1,468 |
|
|
|
1,968 |
|
Fair value adjustments related
to contingent consideration related to acquisitions(b) |
|
(6,184 |
) |
|
|
(1,100 |
) |
Acquisition-related
expenses(c) |
|
3,683 |
|
|
|
5,308 |
|
Amortization of intangible
assets |
|
47,781 |
|
|
|
47,633 |
|
Restructuring expenses(e) |
|
(7,635 |
) |
|
|
260 |
|
Litigation expenses(f) |
|
(31 |
) |
|
|
— |
|
Costs associated with
COVID-19, net of benefits received(g) |
|
(1,389 |
) |
|
|
— |
|
Costs associated with the Take
5 Matter(h) |
|
1,219 |
|
|
|
6,344 |
|
Tax adjustments related to
non-GAAP adjustments |
|
(9,254 |
) |
|
|
(17,177 |
) |
Adjusted Net Income |
$ |
65,607 |
|
|
$ |
65,825 |
|
|
|
|
|
|
|
|
|
A reconciliation of net income (loss) to Adjusted EBITDA is
provided in the following table:
Consolidated |
Three Months Ended September 30, |
|
2020 |
|
|
2019 |
|
(in thousands) |
|
|
|
|
|
|
|
Net income (loss) |
$ |
36,705 |
|
|
$ |
22,731 |
|
Add: |
|
|
|
|
|
|
|
Interest expense, net |
|
48,243 |
|
|
|
57,762 |
|
(Benefit from) provision for
income taxes |
|
3,623 |
|
|
|
(3,968 |
) |
Depreciation and
amortization |
|
58,556 |
|
|
|
57,872 |
|
Sponsors’ management fee and
equity-based compensation expense(a) |
|
1,468 |
|
|
|
1,968 |
|
Fair value adjustments related
to contingent consideration related to acquisitions(b) |
|
(6,184 |
) |
|
|
(1,100 |
) |
Acquisition-related
expenses(c) |
|
3,683 |
|
|
|
5,308 |
|
EBITDA for economic interests
in investments(d) |
|
(2,005 |
) |
|
|
(2,315 |
) |
Restructuring expenses(e) |
|
(7,635 |
) |
|
|
260 |
|
Litigation expenses(g) |
|
(31 |
) |
|
|
— |
|
Costs associated with
COVID-19, net of benefits received(f) |
|
(1,389 |
) |
|
|
— |
|
Costs associated with the Take
5 Matter(h) |
|
1,219 |
|
|
|
6,344 |
|
Adjusted EBITDA |
$ |
136,253 |
|
|
$ |
144,862 |
|
(a) Represents the management fees and
reimbursements for expenses paid to certain of the Advantage
Sponsors (or certain of the management companies associated with it
or its advisors) pursuant to a management services agreement in the
three months ended September 30, 2020 and 2019. Also represents
expenses related to (i) equity-based compensation associated with
grants of Common Series D Units of Topco made to one of the equity
sponsors of Topco, (ii) compensation amounts associated with the
Company’s Management Incentive Plan originally scheduled for
potential payment March 2022, and (iii) compensation amounts
associated with the anniversary payments to Tanya Domier.
(b) Represents adjustments to the estimated fair
value of our contingent consideration liabilities related to our
acquisitions, excluding the present value accretion recorded in
interest expense, net, for the applicable periods. See Note 6 to
our unaudited condensed consolidated financial statements for the
three months ended and nine months ended September 30, 2020 and
2019.(c) Represents fees and costs associated with
activities related to our acquisitions and restructuring activities
related to our equity ownership, including professional fees, due
diligence and integration activities.
(d) 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 for the three months ended
September 30, 2020 and 2019.(e) Represents fees
and costs associated with various internal reorganization
activities among our consolidated entities. The decrease for the
three months ended September 30, 2020 relates primarily to the
non-cash settlement of lease liabilities. For additional
information, refer to Note 10—Commitments and Contingencies of our
condensed consolidated financial statements for the three months
ended and the nine months ended September 30,
2020.(f) Represents (1) costs related to
implementation of strategies for workplace safety in response to
COVID-19, including employee-relief fund, additional sick pay for
front-line associates, medical benefit payments for furloughed
associates, and personal protective equipment; and (2) benefits
received from government grants for COVID-19
relief.(g) Represents legal settlements that are
unusual or infrequent costs associated with our operating
activities.(h) Represents costs associated with
investigation and remediation activities related to the Take 5
Matter, primarily, professional fees and other related costs for
the three months ended September 30, 2020 and 2019.
A reconciliation of total debt to Net Debt is provided in the
following table:
(in
millions) |
September 30, 2020 |
|
Proforma Combined September 30, 2020 |
Current portion of long-term debt |
$ |
26.2 |
|
|
$ |
13.2 |
|
Long-term debt, net of current
portion |
|
3,287.3 |
|
|
|
2,110.4 |
|
Total Debt |
|
3,313.5 |
|
|
|
2,123.6 |
|
Less: |
|
|
|
|
|
Debt issuance costs |
|
(18.0 |
) |
|
|
(79.8 |
) |
Cash and cash equivalents |
|
486.4 |
|
|
|
151.2 |
|
Total Net Debt (i) |
$ |
2,845.1 |
|
|
$ |
2,052.2 |
|
(i) We present Net Debt because we believe the
non-GAAP measure provides useful information to management and
investors regarding certain financial and business trends relating
to Advantage’s financial condition and to evaluate changes to the
Company's capital structure and credit quality assessment.
Contacts:
Dan MorrisonSenior Vice President, Finance &
OperationsAdvantage Solutions
Helen O’Donnell Solebury TroutManaging Director
Investorrelations@advantagesolutions.net
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