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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-250201

PROSPECTUS

 

 

LOGO

ADVANTAGE SOLUTIONS

Advantage Solutions Inc.

Up to 11,250,000 Shares of Class A Common Stock Issuable Upon Exercise of Warrants

Up to 50,000,000 Shares of Class A Common Stock by the Selling Stockholders

 

 

This prospectus relates to the issuance by us of up to an aggregate of up to 11,250,000 shares of our Class A common stock, $0.0001 par value per share (“Class A common stock”) that are issuable upon the exercise of 11,250,000 warrants (the “Warrants”) originally issued in the initial public offering of Conyers Park II Acquisition Corp., our predecessor company. We will receive in cash the proceeds from any exercise of Warrants and issuance of such shares underlying the Warrants pursuant to this prospectus.

This prospectus also relates to the offer and sale from time to time by the selling stockholders named in this prospectus (the “Selling Stockholders”) of up to 50,000,000 shares of Class A common stock. We will not receive any proceeds from the sale of shares of Class A common stock by the Selling Stockholders pursuant to this prospectus.

Our registration of the securities covered by this prospectus does not mean that the Selling Stockholders will offer or sell any of the shares. The Selling Stockholders may sell the shares of Class A common stock covered by this prospectus in a number of different ways and at varying prices. We provide more information about how the Selling Stockholders may sell the shares in the section entitled “Plan of Distribution.”

Our Class A common stock and Warrants are listed on the Nasdaq Global Select Market under the symbols “ADV” and “ADVWW,” respectively. On December 9, 2020, the closing price of our Class A common stock was $11.53 and the closing price for our Warrants was $2.245.

 

 

See the section entitled “Risk Factors” beginning on page 4 of this prospectus to read about factors you should consider before buying our securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is December 9, 2020.


Table of Contents

TABLE OF CONTENTS

 

     Page  

ABOUT THIS PROSPECTUS

     ii  

FORWARD-LOOKING STATEMENTS

     iii  

SUMMARY

     1  

RISK FACTORS

     4  

USE OF PROCEEDS

     29  

DETERMINATION OF OFFERING PRICE

     29  

MARKET INFORMATION FOR COMMON STOCK AND DIVIDEND POLICY

     30  

SELECTED FINANCIAL INFORMATION

     31  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     33  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     44  

BUSINESS

     90  

MANAGEMENT

     108  

EXECUTIVE COMPENSATION

     117  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     132  

PRINCIPAL SECURITYHOLDERS

     137  

SELLING STOCKHOLDERS

     139  

DESCRIPTION OF OUR SECURITIES

     142  

PLAN OF DISTRIBUTION

     153  

LEGAL MATTERS

     155  

EXPERTS

     155  

WHERE YOU CAN FIND MORE INFORMATION

     155  

INDEX TO FINANCIAL STATEMENTS

     F-1  

You should rely only on the information provided in this prospectus, as well as the information incorporated by reference into this prospectus and any applicable prospectus supplement. Neither we nor the Selling Stockholders have authorized anyone to provide you with different information. Neither we nor the Selling Stockholders are making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus or any applicable prospectus supplement is accurate as of any date other than the date of the applicable document. Since the date of this prospectus and the documents incorporated by reference into this prospectus, our business, financial condition, results of operations and prospects may have changed.

 

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ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement on Form S-1 that we filed with the Securities and Exchange Commission (the “SEC”) using the “shelf” registration process. Under this shelf registration process, the Selling Stockholders may, from time to time, sell the securities offered by them described in this prospectus. We will not receive any proceeds from the sale by such Selling Stockholders of the securities offered by them described in this prospectus. This prospectus also relates to the issuance by us of the shares of Class A common stock issuable upon the exercise of any Warrants. We will receive in cash the proceeds from any exercise of Warrants and issuance of such shares underlying the Warrants pursuant to this prospectus.

Neither we nor the Selling Stockholders have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or any applicable prospectus supplement or any free writing prospectuses prepared by or on behalf of us or to which we have referred you. Neither we nor the Selling Stockholders take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor the Selling Stockholders will make an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.

We may also provide a prospectus supplement or post-effective amendment to the registration statement to add information to, or update or change information contained in, this prospectus. You should read both this prospectus and any applicable prospectus supplement or post-effective amendment to the registration statement together with the additional information to which we refer you in the sections of this prospectus entitled “Where You Can Find More Information.”

On October 28, 2020 (the “Closing Date”), Conyers Park II Acquisition Corp., our predecessor company (“Conyers Park”), consummated the previously announced merger pursuant to that certain Merger Agreement, dated September 7, 2020 (the “Merger Agreement”), by and among Conyers Park, CP II Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Conyers Park (“Merger Sub”), Advantage Solutions Inc., a Delaware corporation (“Legacy Advantage” and “ASI Intermediate Corp.”), and Karman Topco L.P., a Delaware limited partnership (“Topco”). Pursuant to the Merger Agreement, Merger Sub was merged with and into Legacy Advantage with Legacy Advantage being the surviving company in the merger as a wholly owned subsidiary of Conyers Park (the “Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Transactions”). On the Closing Date, and in connection with the closing of the Transactions (the “Closing”), Conyers Park II Acquisition Corp. changed its name to Advantage Solutions Inc.

Unless the context indicates otherwise, references in this prospectus to the “Company,” “Advantage,” “we,” “us,” “our” and similar terms refer to Advantage Solutions Inc. (f/k/a Conyers Park II Acquisition Corp.) and its consolidated subsidiaries (including Legacy Advantage). References to “Conyers Park” refer to our predecessor company prior to the consummation of the Transactions.

 

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FORWARD-LOOKING STATEMENTS

This prospectus and any accompanying prospectus supplement include statements that express Advantage’s opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements.” These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this prospectus and include statements regarding our intentions, beliefs or current expectations concerning, among other things, the Transactions and the benefits of the Transactions, including results of operations, financial condition, liquidity, prospects, growth, strategies and the markets in which Advantage operates. Such forward-looking statements are based on available current market material and management’s expectations, beliefs and forecasts concerning future events impacting Advantage. Factors that may impact such forward-looking statements include:

 

   

the COVID-19 pandemic and the measures taken to mitigate its spread including its adverse effects on Advantage’s business, results of operations, financial condition and liquidity;

 

   

developments with respect to retailers that are out of Advantage’s control;

 

   

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;

 

   

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;

 

   

client procurement strategies putting additional operational and financial pressure on Advantage’s services;

 

   

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 matter related to the April 2018 acquisition of Take 5 Media Group (the “Take 5 Matter”);

 

   

Advantage’s ability to identify attractive acquisition targets, acquire them at attractive prices, and successfully integrate the acquired businesses;

 

   

Advantage’s ability to hire, timely train, and retain talented individuals for its workforce, and to maintain its corporate culture as it evolves;

 

   

Advantage’s ability to avoid or manage business conflicts among competing brands;

 

   

difficulties in integrating acquired businesses;

 

   

Advantage’s substantial indebtedness and our ability to refinance at favorable rates;

 

   

limitations, restrictions, and business decisions involving Advantage’s joint ventures and minority investments;

 

   

exposure to foreign currency exchange rate fluctuations and risks related to Advantage’s international operations;

 

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the ability to meet applicable listing standards following the consummation of the Transactions;

 

   

the ability to recognize the anticipated benefits of the Transactions, which may be affected by, among other things, competition, the ability of Advantage to grow and manage growth profitably, maintain relationships with customers and suppliers and retain its management and key employees;

 

   

costs related to the Merger;

 

   

changes in applicable laws or regulations;

 

   

the possibility that Advantage may be adversely affected by other political, economic, business, and/or competitive factors;

 

   

other factors disclosed in this prospectus; and

 

   

other factors beyond Advantage’s control.

Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Additional cautionary statements or discussions of risks and uncertainties that could affect our results or the achievement of the expectations described in forward-looking statements may also be contained in any accompanying prospectus supplement. There can be no assurance that future developments affecting Advantage will be those that Advantage has anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.

These forward-looking statements made by us in this prospectus and any accompanying prospectus supplement speak only as of the date of this prospectus and the accompanying prospectus supplement. Except as required under the federal securities laws and rules and regulations of the SEC, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. You should, however, review additional disclosures we make in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed with the SEC.

You should read this prospectus and any accompanying prospectus supplement completely and with the understanding that our actual future results, levels of activity and performance as well as other events and circumstances may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

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SUMMARY

This summary highlights selected information appearing elsewhere in this prospectus. Because it is a summary, it may not contain all of the information that may be important to you. To understand this offering fully, you should read this entire prospectus carefully, including the information set forth under the heading “Risk Factors” and our financial statements.

The Company

We are a leading business solutions provider to consumer goods manufacturers and retailers. Our customizable suite of technology-enabled sales and marketing solutions is designed to help manufacturers and retailers across a broad range of channels drive consumer demand, increase sales, and achieve operating efficiencies. Through our sales segment, we serve as a critical link between consumer goods manufacturers and their retailer partners. Our sales associates prepare and present to retailers a business case to increase distribution of manufacturers’ products and optimize how they are displayed, priced, and promoted both in-store and online. We also make in-store visits to ensure such products are adequately stocked and properly displayed. Through our marketing segment, we help brands and retailers reach consumers through two main platforms. The first is our retail experiential business, also known as sampling or demo, where we manage highly customized and deeply embedded large scale sampling programs (both in-store and online) with multi-decade relationships for leading retailers. These programs are mission-critical platforms for brands and retailers to drive sales, promote loyalty and build trial. The second is our collection of specialized agency businesses where we provide private label services to retailers and develop granular marketing programs for brands and retailers that are designed to influence shoppers on their paths to, and at the point of, purchase using our proprietary insights on shopper behavior, analytics, brand knowledge, and understanding of manufacturer and retailer strategies. In 2019, we provided services to over 3,500 manufacturers, and provided services for products located at more than 200,000 retail locations.

Background

Our Company was originally known as Conyers Park II Acquisition Corp. On October 28, 2020, Conyers Park consummated the Transactions with Legacy Advantage pursuant to the Merger Agreement dated as of September 7, 2020 among Conyers Park, Legacy Advantage and Merger Sub. In connection with the Closing of the Transactions, Conyers Park changed its name to Advantage Solutions Inc. Legacy Advantage was deemed to be the accounting acquirer in the Merger based on an analysis of the criteria outlined in Accounting Standards Codification 805. While Conyers Park was the legal acquirer in the Merger, because Legacy Advantage was deemed the accounting acquirer, the historical financial statements of Legacy Advantage became the historical financial statements of the combined company, upon the consummation of the Merger.

In September 2020, we entered into subscription agreements (collectively, the “Subscription Agreements”) pursuant to which certain investors agreed to subscribe for shares of our Class A common stock at a purchase price of $10.00 per share. The purchasers under the Subscription Agreements, other than the CP Sponsor and participating Advantage Sponsors (as defined below) and their affiliates, agreed to purchase an aggregate of 50,000,000 shares of Class A common stock. Certain of the Advantage Sponsors or their affiliates and the CP Sponsor (as defined below) agreed to purchase an aggregate of 20,000,000 shares of Class A common stock, or, in their sole discretion, up to 45,000,000 shares in the event our public stockholders exercised their redemption rights in connection with the Merger and in order to meet the minimum cash condition specified in the Merger Agreement (collectively, the “PIPE Investment”). At the Closing, we consummated the PIPE Investment and issued 85,540,000 shares of its Class A common stock for aggregate gross proceeds of $855.4 million.

In connection with the Closing, Advantage Solutions FinCo LLC (“Finco”), a newly formed limited liability company formed under the laws of Delaware and a direct subsidiary of Advantage Sales & Marketing Inc.



 

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(“ASM”), an indirect wholly-owned subsidiary of the Company, issued $775 million aggregate principal amount of 6.50% Senior Secured Notes due 2028 (the “Notes”). Substantially concurrently with the Closing, Finco merged with and into ASM (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, 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, among Finco, the Issuer, the guarantors named therein (the “Notes Guarantors”) and Wilmington Trust, National Association, as trustee and collateral agent (the “Indenture”).

In addition, in connection with the consummation of the Transaction, ASM entered into (i) a new senior secured asset-based revolving credit facility in an aggregate principal amount of up to $400.0 million, subject to borrowing base capacity (the “New Revolving Credit Facility”) and (ii) a new secured first lien term loan credit facility in an aggregate principal amount of $1.325 billion (the “New Term Loan Facility” and together with the New Revolving Credit Facility, the “New Senior Secured Credit Facilities”).

At the effective time of the Merger (the “Effective Time”), each share of Legacy Advantage common stock issued and outstanding immediately prior to the Effective Time converted into the right to receive a portion of the merger consideration.

Our Class A common stock and Warrants are currently listed on the Nasdaq Global Select Market under the symbols “ADV” and “ADVWW,” respectively.

The rights of holders of our Class A common stock and Warrants are governed by our second amended and restated certificate of incorporation (the “Certificate of Incorporation”), our amended and restated bylaws (the “Bylaws”) and the Delaware General Corporation Law (the “DGCL”), and, in the case of the Warrants, the Warrant Agreement, dated July 22, 2019, between Conyers Park and the Continental Stock Transfer & Trust Company (the “Warrant Agreement”). See the sections entitled “Description of Our Securities” and “Selling Stockholders — Certain Relationships with Selling Stockholders.”

Corporate Information

Conyers Park, which was incorporated under the laws of the State of Delaware on May 2019 as a special purpose acquisition company, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses. Conyers Park completed its initial public offering in July 2019. In October 2020, our wholly-owned subsidiary merged with and into Legacy Advantage, with Legacy Advantage surviving the merger as a wholly-owned subsidiary of Conyers Park. In connection with the Merger, we changed our name to Advantage Solutions Inc. We refer to certain entities that are or are controlled by equity funds affiliated with or advised by CVC Capital Partners, Leonard Green & Partners, Juggernaut Capital Partners and Centerview Capital Management, LLC, Bain Capital and Yonghui Investment Limited, collectively as the “Advantage Sponsors.” We also refer to Conyers Park II Sponsor LLC, an affiliate of Centerview Capital, which was Conyers Park’s sponsor prior to the Merger, as the “CP Sponsor.” The Advantage Sponsors, through their direct ownership of our common stock and their ownership of equity interests of Topco, and the CP Sponsor control us, and will continue to control us after the issuance of the shares of Class A common stock contemplated hereby. Our principal executive offices are located at 18100 Von Karman Ave., Suite 1000, Irvine, California 92612. Our telephone number is (949) 797-2900. Our website address is www.advantagesolutions.net. Information contained on our website or connected thereto does not constitute part of, and is not incorporated by reference into, this prospectus or the registration statement of which it forms a part.



 

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THE OFFERING

 

Issuer

Advantage Solutions Inc. (f/k/a Conyers Park II Acquisition Corp.).

Issuance of Class A Common Stock

 

Shares of Class A Common Stock Offered by us

11,250,000 shares of Class A common stock issuable upon exercise of the Warrants.

 

Shares of Class A Common Stock Outstanding Prior to Exercise of All Warrants

318,425,182 shares (as of October 28, 2020).

 

Shares of Class A Common Stock Outstanding Assuming Exercise of All Warrants

329,675,182 shares (based on total shares outstanding as of October 28, 2020).

 

Exercise Price of Warrants

$11.50 per share, subject to adjustment as described herein.

 

Use of Proceeds

We will receive up to an aggregate of approximately $129.4 million from the exercise of the Warrants, assuming the exercise in full of all of the Warrants for cash. We expect to use the net proceeds from the exercise of the Warrants for general corporate purposes. See “Use of Proceeds.”

 

Resale of Class A Common Stock

 

 

Shares of Class A Common Stock Offered by the Selling Stockholders

50,000,000 shares.

 

Use of Proceeds

We will not receive any proceeds from the sale of shares of Class A common stock by the Selling Stockholders.

 

Market for Class A common stock and Warrants

Our Class A common stock and Warrants are currently traded on the Nasdaq Global Select Market under the symbols “ADV” and “ADVWW,” respectively.

 

Risk Factors

See “Risk Factors” and other information included in this prospectus for a discussion of factors you should consider before investing in our securities.


 

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RISK FACTORS

Investing in our securities involves risks. Before you make a decision to buy our securities, in addition to the risks and uncertainties discussed above under “Forward-Looking Statements,” you should carefully consider the specific risks set forth herein. If any of these risks actually occur, it may materially harm our business, financial condition, liquidity and results of operations. As a result, the market price of our securities could decline, and you could lose all or part of your investment. Additionally, the risks and uncertainties described in this prospectus or any prospectus supplement are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business. The following discussion should be read in conjunction with the financial statements and notes to the financial statements included herein.

Summary of Principal Risks Associated with Our Business

Set forth below is a summary of some of the principal risks we face:

 

   

the COVID-19 pandemic and the measures taken to mitigate its spread including its adverse effects on Advantage’s business, results of operations, financial condition and liquidity;

 

   

developments with respect to retailers that are out of Advantage’s control;

 

   

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;

 

   

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;

 

   

client procurement strategies putting additional operational and financial pressure on Advantage’s services;

 

   

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 matter related to the April 2018 acquisition of Take 5 Media Group (the “Take 5 Matter”);

 

   

Advantage’s ability to identify attractive acquisition targets, acquire them at attractive prices, and successfully integrate the acquired businesses;

 

   

Advantage’s ability to hire, timely train, and retain talented individuals for its workforce, and to maintain its corporate culture as it evolves;

 

   

Advantage’s ability to avoid or manage business conflicts among competing brands;

 

   

difficulties in integrating acquired businesses;

 

   

Advantage’s substantial indebtedness and our ability to refinance at favorable rates;

 

   

limitations, restrictions, and business decisions involving Advantage’s joint ventures and minority investments;

 

   

exposure to foreign currency exchange rate fluctuations and risks related to Advantage’s international operations;

 

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the ability to meet applicable listing standards following the consummation of the Transactions;

 

   

the ability to recognize the anticipated benefits of the Transactions, which may be affected by, among other things, competition, the ability of Advantage to grow and manage growth profitably, maintain relationships with customers and suppliers and retain its management and key employees;

 

   

costs related to the Merger;

 

   

changes in applicable laws or regulations; and

 

   

the possibility that Advantage may be adversely affected by other political, economic, business, and/or competitive factors.

Risks Related to the Company’s Business and Industry

The COVID-19 pandemic and the measures taken to mitigate its spread have had, and are likely to continue to have, an adverse effect on our business, results of operations, financial condition and liquidity.

The COVID-19 pandemic, including the measures taken to mitigate its spread, have had, and are likely to continue to have, adverse effects on our business of operations. There are many uncertainties regarding the current COVID-19 pandemic, including the scope of potential public health issues, the anticipated duration of the pandemic and the extent of local and worldwide social, political and economic disruption it has caused and may cause in the future. To date, the COVID-19 pandemic and measures taken to mitigate the spread of COVID-19, including restrictions on large gatherings, closures of face-to-face events, “shelter in place” health orders and travel restrictions, have had far-reaching direct and indirect impacts on many aspects of our operations, including temporary termination of certain in-store demonstration services and other services, as well as on consumer behavior and purchasing patterns, in particular with respect to the foodservice industries, and declines in consumer demand for restaurant, school and hotel dining, where we promote our clients’ products. Since March 2020, our marketing segment has experienced a significant decline in revenues, primarily due to the temporary cessation of certain in-store demonstration services and decreased demand in our digital marketing services, both of which we believe were caused by the COVID-19 pandemic and the various governmental and private responses to the pandemic, and which may continue in the future. In our sales segment, we have experienced significant shifts in consumer spending preferences and habits. We can provide no assurances that the strength of that segment will continue or that we will be able to continue to evolve our business in the future as the COVID-19 pandemic continues to impact our clients’ businesses.

We have taken several actions in response to these business disruptions, including reducing certain of our discretionary expenditures, reducing our real estate foot print, through lease terminations and amendments (including abandoning several office leases prior to reaching termination agreements with its landlords), eliminating non-essential travel and terminating, furloughing or instituting pay reductions and deferrals for some of our associates, but the pandemic has had, and may continue to have, an adverse effect on our results of operations, including our revenues, our financial condition and liquidity.

The COVID-19 pandemic also may have the effect of heightening many of the other risks described in these “Risk Factors”, including:

 

   

potential changes in the policies of retailers in response to the COVID-19 pandemic, including changes or restrictions in their outsourcing of sales and marketing functions and restrictions on the performance of in-store demonstration services, if at all;

 

   

potential changes in the demand for services by our clients in response to the COVID-19 pandemic;

 

   

the need for us to adapt to technological change and otherwise develop and maintain omni-channel solutions;

 

   

our ability to generate sufficient cash to service our substantial indebtedness;

 

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our ability to maintain our credit rating;

 

   

our ability to offer high-quality customer support and maintain our reputation;

 

   

our ability to identify, and perform adequate diligence on, consummate acquisitions of attractive business targets, and then subsequently integrate acquired businesses;

 

   

our ability to hire, timely train and retain talented individuals for our workforce;

 

   

our ability to maintain our corporate culture;

 

   

severe disruption and instability in the U.S. and global financial markets or deteriorations in credit and financing conditions, which could make it difficult for us to access debt and equity capital on attractive terms, or at all;

 

   

our ability to effectively manage our operations while a significant amount of our associates continue to work remotely due to the COVID-19 pandemic;

 

   

deteriorating economic conditions, higher unemployment, public transportation disruptions or other disruptions as a result of the COVID-19 pandemic could result in lower-than-planned sales during key revenue-producing seasons, leading to lower revenues;

 

   

potential cost-saving strategies implemented by clients that reduce fees paid to third-party service providers; and

 

   

our ability to implement additional internal control measures to improve our internal control over financial reporting.

We cannot predict the full extent to which the COVID-19 pandemic may affect our business, financial condition and results of operations, as such effects will depend on how the COVID-19 pandemic and the measures taken in response to the COVID-19 pandemic continue to develop. However, these effects may continue, evolve or increase in severity, each of which could further negatively impact our business, financial condition, results of operations and liquidity.

Our business and results of operations are affected by developments with and policies of retailers that are out of our control.

A limited number of national retailers account for a large percentage of sales for our consumer goods manufacturer clients. We expect that a significant portion of these clients’ sales will continue to be made through a relatively small number of retailers and that this percentage may increase if the growth of mass retailers and the trend of retailer consolidation continues. As a result, changes in the strategies of large retailers, including a reduction in the number of brands that these retailers carry or shelf space that they dedicate to private label products, could materially reduce the value of our services to these clients or these clients’ use of our services and, in turn, our revenues and profitability. Many retailers have critically analyzed the number and variety of brands they sell, and have reduced or discontinued the sale of certain of our clients’ product lines at their stores, and more retailers may continue to do so. If this continues to occur and these clients are unable to improve distribution for their products at other retailers, our business or results of operations could be adversely affected. These trends may be accelerated as a result of the COVID-19 pandemic.

Additionally, many retailers, including several of the largest retailers in North America, which own and operate a significant number of the locations at which we provide our services, have implemented or may implement in the future, policies that designate certain service providers to be the exclusive provider or one of their preferred providers for specified services, including many of the services that we provide to such retailers or our clients. Some of these designations apply across all of such retailers’ stores, while other designations are limited to specific regions. If we are unable to respond effectively to the expectations and demands of such retailers or if retailers do not designate us as their exclusive provider or one of their preferred providers for any reason, they

 

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could reduce or restrict the services that we are permitted to perform for our clients at their facilities or require our clients to purchase services from other designated services providers, which include our competitors, either of which could adversely affect our business or results of operations.

Changes to wage or job classification regulations, including minimum wages and market-driven wage increases could impact our results of operations.

Changes in labor laws related to employee hours, wages, job classification and benefits, including health care benefits, could impact our results of operations. In addition, in response to the COVID-19 pandemic, we have significantly reduced our workforce. As of September 30, 2020, we employed approximately 58,000 associates, many of whom are paid above, but near, applicable minimum wages.

Additionally, many of our salaried associates are paid at rates that could be impacted by changes to minimum pay levels for exempt roles. Certain state or municipal jurisdictions in which we operate have recently increased their minimum wage by a significant amount, and other jurisdictions are considering or plan to implement similar actions, which may increase our labor costs. Any increases at the federal, state or municipal level to the minimum pay rate required to remain exempt from overtime pay may adversely affect our business or results of operations.

Furthermore, market competition may create further pressure for us to increase the wages paid to our associates or the benefits packages that they receive. If we experience market-driven increases in wage rates or in benefits or if we fail to increase our wages or benefits packages competitively, the quality of our workforce could decline, causing our client service to suffer. Consistently low unemployment rates may increase the likelihood or impact of such market pressures. Any of these changes affecting wages for our associates could adversely affect our business or results of operations.

Consolidation in the industries we serve could put pressure on the pricing of our services, which could adversely affect our business or our results of operations.

Consolidation in the consumer goods and retail industries we serve could reduce aggregate demand for our services in the future and could adversely affect our business or our results of operations. When companies merge, the services they previously purchased separately are often purchased by the combined entity, leading to the termination of relationships with certain service providers or demands for reduced fees and commissions. The combined company may also choose to insource certain functions that were historically outsourced, resulting in the termination of existing relationships with third-party service providers. While we attempt to mitigate the revenue impact of any consolidation by maintaining existing or winning new service arrangements with the combined companies, there can be no assurance as to the degree to which we will be able to do so as consolidation continues in the industries we serve. In addition, as a result of the COVID-19 pandemic and its impacts on the consumer goods and retail industries, the industries we serve have experienced and may continue to experience a greater degree of consolidation than they have historically, which has put additional pressure on our pricing and may put further pressure on our pricing in the future.

Consumer goods manufacturers and retailers may periodically review and change their sales, retail, marketing and technology programs and relationships to our detriment.

The consumer goods manufacturers and retailers to whom we provide our business solutions operate in highly competitive and rapidly changing environments. From time to time these parties may put their sales, retail, marketing and technology programs and relationships up for competitive review, which may increase as a result of the COVID-19 pandemic and its impacts on the consumer goods manufacturers and retailer industries. We have occasionally lost accounts with significant clients as a result of these reviews in the past, and our clients are typically able to reduce or cancel current or future spending on our services on short notice for any reason. We believe that key competitive considerations for retaining existing and winning new accounts include our ability to

 

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develop solutions that meet the needs of these manufacturers and retailers in this environment, the quality and effectiveness of our services and our ability to operate efficiently. To the extent that we are not able to develop these solutions or to operate efficiently, we may not be able to retain key clients, and our business or results of operations may be adversely affected.

Our largest clients generate a significant portion of our revenues.

Our three largest clients generated approximately 11% of our revenues in the fiscal year ended December 31, 2019 and approximately 13% of our revenues in the nine months ended September 30, 2020. These clients are generally able to reduce or cancel spending on our services on short notice for any reason. A significant reduction in spending on our services by our largest clients, or the loss of one or more of our largest clients, if not replaced by new clients or an increase in business from existing clients, would adversely affect our business and results of operations. In addition, when large retailers suspend or discontinue in-store demonstration services, such as in response to the COVID-19 pandemic, our business and results of operations can be adversely affected.

The retail industry is evolving, and if we do not successfully develop and maintain relevant omni-channel services for our clients, our business and results of operations could be adversely impacted.

Historically, substantially all of our sales segment revenues were generated by sales and services that ultimately occurred in traditional retail stores. The retail industry is evolving, as demonstrated by Amazon’s acquisition of Whole Foods Market and Walmart’s acquisition of Jet.com. In addition, the COVID-19 pandemic has placed pressure on the traditional retail store model, including store closures, changes in consumer spending, and extensive health and safety risks and compliance requirements, If consumers continue to shift to purchase more products online and e-commerce continues to displace brick-and-mortar retail sales, there may be a decrease in the demand for certain of our services. Consumers are increasingly using computers, tablets, mobile phones and other devices to comparison shop, determine product availability and complete purchases online, a trend that has accelerated during the COVID-19 pandemic, and which may continue thereafter. Omni-channel retailing is rapidly evolving and we believe we will need to keep pace with the changing consumer expectations and new developments by our competitors.

While we continue to seek to develop effective omni-channel solutions for our clients that support both their e-commerce and traditional retail needs, there can be no assurances that these efforts will result in revenue gains sufficient to offset potential decreases associated with a decline in traditional retail sales or that we will be able to maintain our position as a leader in our industry. If we are unable to provide, improve or develop innovative digital services and solutions in a timely manner or at all, our business and results of operations could be adversely impacted.

We may be unable to adapt to significant technological change, which could adversely affect our business.

We operate in businesses that require sophisticated data collection, processing and software for analysis and insights. Some of the technologies supporting the industries we serve are changing rapidly, particularly as a result of the COVID-19 pandemic. We will be required to continue to adapt to changing technologies, either by developing and marketing new services or by enhancing our existing services, to meet client demand.

Moreover, the introduction of new services embodying new technologies, including automation of certain of our in-store services, and the emergence of new industry standards could render existing services obsolete. Our continued success will depend on our ability to adapt to changing technologies, manage and process increasing amounts of data and information and improve the performance, features and reliability of our existing services in response to changing client and industry demands. We may experience difficulties that could delay or prevent the successful design, development, testing, introduction or marketing of our services. New services or enhancements to existing services may not adequately meet the requirements of current and prospective clients or achieve market acceptance.

 

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Our ability to maintain our competitive position depends on our ability to attract and retain talented executives.

We believe that our continued success depends to a significant extent upon the efforts, abilities and relationships of our senior executives and the strength of our middle management team. Although we have entered into employment agreements with certain of our senior executives, each of them may terminate their employment with us at any time. The replacement of any of our senior executives likely would involve significant time and costs and may significantly delay or prevent the achievement of our business objectives and could therefore have an adverse impact on our business. In addition, we do not carry any “key person” insurance policies that could offset potential loss of service under applicable circumstances. If we are unable to attract and retain a talented team of middle management executives, it may be difficult to maintain the expertise and industry relationships that our clients value, and they may terminate or reduce their relationship with us.

Client procurement and fee reduction strategies could put additional operational and financial pressure on our services or negatively impact our relationships or our financial results.

Many of our clients seek opportunities to reduce their costs through procurement strategies that reduce fees paid to third-party service providers. As a result, certain of our clients have sought, and may continue to seek, more aggressive terms from us, including with respect to pricing and payment terms. Such activities put operational and financial pressure on our business, which could limit the amounts we earn or delay the timing of our cash receipts. Such activities may also cause disputes with our clients or negatively impact our relationships or financial results. While we attempt to mitigate negative implications to client relationships and the revenue impact of any pricing pressure by aligning our revenues opportunity with satisfactory client outcomes, there can be no assurance as to the degree to which we will be able to do so successfully. Additionally, price concessions can lead to margin compression, which in turn could adversely affect our business or results of operations.

If we fail to offer high-quality customer support, our business and reputation may suffer.

High-quality education, training and customer support are important for successful marketing and sales and for the renewal of existing customers. Providing this education, training and support requires that our personnel who manage our online training resource or provide customer support have specific inbound experience domain knowledge and expertise, making it more difficult for us to hire qualified personnel and to scale up our support operations. The importance of high-quality customer support will increase as we expand our business and pursue new customers. If we do not help our customers use multiple applications and provide effective ongoing support, our ability to sell additional functionality and services to, or to retain, existing customers may suffer and our reputation with existing or potential customers may be harmed.

We may be adversely affected if clients reduce their outsourcing of sales and marketing functions.

Our business and growth strategies depend in large part on companies continuing to elect to outsource sales and marketing functions. Our clients and potential clients will outsource if they perceive that outsourcing may provide quality services at a lower overall cost and permit them to focus on their core business activities and have done so in the past. We cannot be certain that the industry trend to outsource will continue or not be reversed or that clients that have outsourced functions will not decide to perform these functions themselves. Unfavorable developments with respect to outsourcing could have a negative effect on our business and results of operations.

We have identified material weaknesses in our internal control over financial reporting. If we are unable to effectively remediate any of these material weaknesses or if we fail to maintain proper and effective internal controls in the future, our ability to produce accurate and timely financial statements could be impaired, investors’ views of us could be harmed, and we could be subject to enforcement actions by the SEC.

On August 15, 2019, we concluded that our previously-issued audited consolidated financial statements and related notes as of and for the year ended December 31, 2018, should be restated to reflect the corrections of

 

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misstatements as a result of the Take 5 Matter. Specifically, we determined that revenues during the fiscal year ended December 31, 2018 attributable to the Take 5 business had been recognized for services for which performance obligations were not performed on behalf of clients of Take 5 and that inaccurate reports were made to Take 5 clients about those services. As a result of the inappropriate business and revenue recognition practices at Take 5, we also determined that the acquired assets and liabilities of Take 5 were not properly stated at fair value at the acquisition date. In addition, and unrelated to the Take 5 Matter, we corrected an error to the benefit from income taxes for the three months ended September 30, 2018 and December 31, 2018. The net impact of the errors in the provision for income taxes did not change the amount of the benefit from income taxes for the twelve months ended December 31, 2018.

In connection with our investigation into the Take 5 Matter and the other error corrections, we have identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Specifically, we identified material weaknesses in the design and operating effectiveness of our risk assessment and information and communication processes which contributed to the following material weaknesses:

 

   

We determined that we did not design and maintain effective controls related to our due diligence procedures for potential acquisitions with respect to databases and information technology systems used to recognize revenue and determine the satisfaction of performance obligations. Specifically, internal controls were not designed and maintained to assess the risks associated with potential acquisitions and the need to perform due diligence as part of purchase accounting with respect to databases and information technology systems utilized to determine the satisfaction of performance obligations, and to communicate and evaluate the results of due diligence.

 

   

We determined that we did not design and maintain effective controls to establish an appropriate basis for reliance on data and information in our information technology systems used for revenue recognition in certain of our newly acquired businesses. Specifically, internal controls were not designed and maintained to ensure the completeness and accuracy of system generated reports used to verify the satisfaction of performance obligations.

 

   

We determined that we did not design and maintain effective controls related to information and communication specifically with respect to our whistleblower complaint process to properly investigate, communicate and resolve whistleblower complaints and allegations related to accounting or other misconduct in a timely manner, and with respect to communication with appropriate parties. Specifically, internal controls were not designed and maintained to ensure that individuals conducting investigations into allegations of accounting or other misconduct had the appropriate expertise and supervision, and that the results of the investigations have been communicated to the appropriate parties or that other transactions are communicated to the appropriate parties.

We evaluated these material weaknesses and the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. These material weaknesses resulted in misstatements in our previously issued annual and interim consolidated financial statements and resulted in the restatement.

Additionally, these material weaknesses could result in a misstatement of our consolidated financial statements or disclosures that would result in a material misstatement to our annual or interim financial statements that would not be prevented or detected.

We are in the process of designing and implementing measures to improve our internal control over financial reporting and remediate the material weaknesses. Our efforts include the following actions:

 

   

In order to validate more fully an acquisition target with databases and information technology systems used to recognize revenue and determine the satisfaction of performance obligations, we are designing

 

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and implementing policies and procedures to perform more robust risk assessment and due diligence procedures in connection with such potential acquisitions, including engaging third-party experts to evaluate such target companies’ databases or information technology, and enhancing the communication and evaluation of due diligence results, as appropriate.

 

   

We are enhancing our procedures related to the risk assessment, evaluation and completeness and accuracy of our internal reporting processes with respect to newly acquired businesses, including with respect to the completeness and accuracy of reports used to verify the satisfaction of performance obligations under client contracts and the accuracy of recognized revenues.

 

   

We are designing, enhancing and implementing procedures and policies to promote timely and proper risk assessment, investigation, resolution, communication and disclosure of any whistleblower complaints or reported allegations of accounting or other misconduct.

In addition, we are designing and implementing various controls, including additional policies, procedures and training, to enhance our disclosure committee process and communication of pertinent information to the appropriate parties in connection with the issuance or reissuance of our consolidated financial statements.

While we are designing and implementing measures to remediate our existing material weaknesses, we cannot predict the success of such measures or the outcome of our assessment of these measures at this time. We can give no assurance that these measures will remediate any of the deficiencies in our internal control over financial reporting or that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be identified in the future. We are required to assess the effectiveness of our internal control over financial reporting, and engage our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting. Further, any businesses that become subsidiaries of our consolidated company, and any other acquired businesses that become part of our consolidated company, will need to comply with the Sarbanes-Oxley Act and the rules and regulations subsequently implemented by the SEC. We will need to ensure that any consolidated company establishes and maintains effective disclosure controls as well as internal controls and procedures for financial reporting.

Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures, or controls, may cause our financial statements to be inaccurate, or cause delays in the preparation and finalization of our financial statements in a timely manner. In addition, even if we were to conclude, and our independent registered public accountants were to concur, that our internal control over financial reporting provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Any of these issues, in turn, could have a material adverse impact on trading prices for our securities, and could adversely affect our ability to access the capital markets.

If we are unable to identify attractive acquisition targets, acquire them at attractive prices or successfully integrate the acquired businesses, we may be unsuccessful in growing our business.

A significant portion of our growth has been as a result of our acquisition of complementary businesses that grow our service offerings, expand our geographic reach and strengthen valuable relationships with clients. However, there can be no assurance that we will find attractive acquisition targets, that we will acquire them at attractive prices, that we will succeed at effectively managing the integration of acquired businesses into our existing operations or that such acquired businesses or technologies will be well received by our clients, potential clients or our investors. We could also encounter higher-than-expected earn-out payments, unforeseen transaction- and integration-related costs or delays or other circumstances such as disputes with or the loss of key or other personnel from acquired businesses, challenges or delays in integrating systems or technology of acquired businesses, a deterioration in our associate and client relationships, harm to our reputation with clients,

 

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interruptions in our business activities or unforeseen or higher-than-expected inherited liabilities. Many of these potential circumstances are outside of our control and any of them could result in increased costs, decreased revenue, decreased synergies or the diversion of management time and attention.

In order for us to continue to grow our business through acquisitions we will need to identify appropriate acquisition opportunities and acquire them at attractive prices. We may choose to pay cash, incur debt or issue equity securities to pay for any such acquisition. The incurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations. The sale of equity to finance any such acquisition could result in dilution to our stockholders.

An inability to hire, timely train and retain talented individuals for our workforce could slow our growth and adversely impact our ability to operate our business.

Our ability to meet our workforce needs, while controlling wage- and associate-related costs, is subject to numerous external factors, including the availability of talented persons in the workforce in the local markets in which we operate, prevailing unemployment rates and competitive wage rates in such markets. We may find that there is an insufficient number of qualified individuals to fill our associate positions with the qualifications we seek. Competition in these communities for qualified staff could require us to pay higher wages and provide greater benefits, especially if there is significant improvement in regional or national economic conditions. We must also train and, in some circumstances, certify these associates under our policies and practices and any applicable legal requirements. Any inability to hire, timely train or retain talented individuals may result in higher turnover and increased labor costs, and could compromise the quality of our service, all of which could adversely affect our business.

Our corporate culture has contributed to our success and, if we are unable to maintain it as we evolve, our business, operating results and financial condition could be harmed.

We believe our corporate culture has been a significant factor in our success. However, as our company evolves, including through acquisitions and the impacts of the COVID-19 pandemic, including working remotely and reductions in workforce, it may be difficult to maintain our culture, which could reduce our ability to innovate and operate effectively. The failure to maintain the key aspects of our culture as our organization evolves could result in decreased employee satisfaction, increased difficulty in attracting top talent, increased turnover and could compromise the quality of our client service, all of which are important to our success and to the effective execution of our business strategy. If we are unable to maintain our corporate culture as we evolve and execute our growth strategies, our business, operating results and financial condition could be harmed.

Acquiring new clients and retaining existing clients depends on our ability to avoid or manage business conflicts among competing brands.

Our ability to acquire new clients and to retain existing clients, whether by expansion of our own operations or by an acquired business may in some cases be limited by the other parties’ perceptions of, or policies concerning, perceived competitive conflicts arising from our other relationships. Some of our contracts expressly restrict our ability to represent competitors of the counterparty. These perceived competitive conflicts may also become more challenging to avoid or manage as a result of continued consolidation in consumer goods and retail industries and our own acquisitions. If we are unable to avoid or manage business conflicts among competing manufacturers and retailers, we may be unable to acquire new clients or be forced to terminate existing client relationships, and in either case, our business and results of operations may be adversely affected.

We may encounter significant difficulties integrating acquired businesses.

The combination of any businesses is a complex, costly and time-consuming process. As a result, we have devoted, and will continue to devote, significant management attention and resources to integrating acquired

 

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businesses. The failure to meet the challenges involved in integrating two businesses and to realize the anticipated benefits of any acquisition could cause an interruption of, or a loss of momentum in, the activities of our combined business and could adversely affect our results of operations. The difficulties of combining acquired operations with our own include, among others:

 

   

the diversion of management attention to integration matters;

 

   

difficulties in integrating functional roles, processes and systems, including accounting systems;

 

   

challenges in conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures between the two companies;

 

   

difficulties in assimilating, attracting and retaining key personnel;

 

   

challenges in keeping existing clients and obtaining new clients;

 

   

difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the transaction;

 

   

difficulties in managing the expanded operations of a significantly larger and more complex business;

 

   

contingent liabilities, including contingent tax liabilities or litigation, that may be larger than expected; and

 

   

potential unknown liabilities, adverse consequences or unforeseen increased expenses associated with an acquisition, including possible adverse tax consequences to the combined business pursuant to changes in applicable tax laws or regulations.

Many of these factors are outside of our control, and any one of them could result in increased costs, decreased expected revenues and diversion of management time and energy, which could adversely impact our business and results of operations. These difficulties have been enhanced further during the COVID-19 pandemic, which has increased the challenges related to successfully integrating our new acquisitions as a result of our office closures and work-from home policies, which may hinder assimilation of key personnel.

If we are not able to successfully integrate an acquisition, if we incur significantly greater costs related to the expected synergies than we anticipate or if activities related to the expected synergies have unintended consequences, our operating performance and financial results could be adversely affected.

Limitations, restrictions and business decisions involving our joint ventures and minority investments may adversely affect our growth and results of operations.

We have made substantial investments in joint ventures and minority investments and may use these and other similar methods to expand our service offerings and geographical coverage in the future. These arrangements typically involve other business services companies as partners that may be competitors of ours in certain markets. Joint venture agreements may place limitations or restrictions on our services. As part of our joint venture with, and investments in Smollan, we are restricted under certain circumstances from making direct acquisitions and otherwise expanding our service offerings into markets outside of North America and Europe. As a result of the acquisition of Daymon Worldwide Inc., or the Daymon Acquisition, pursuant to the terms of our arrangements with Smollan and our joint venture, Smollan and our joint venture may elect to purchase from us, and have purchased, certain Daymon business units that operate outside of North America. If Smollan or our joint venture do not elect to purchase those business units, we may, under certain circumstances, elect to retain, sell or discontinue those business units. The limitations and restrictions tied to our joint venture and minority investments limit our potential business opportunities and reduce the economic opportunity for certain prospective international investments and operations. Additionally, though we control our joint ventures, we may rely upon our equity partners or local management for operational and compliance matters associated with our joint ventures or minority investments. Moreover, our other equity partners and minority investments may have

 

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business interests, strategies or goals that are inconsistent with ours. Business decisions, including actions or omissions, of a joint venture or other equity partner or management for a business unit may adversely affect the value of our investment, result in litigation or regulatory action against us or adversely affect our growth and results of operations.

Our international operations expose us to risks that could impede growth in the future, and our attempts to grow our business internationally may not be successful.

We continue to explore opportunities in major international markets. International operations expose us to various additional risks that could adversely affect our business, including:

 

   

costs of customizing services for clients outside of the United States;

 

   

the burdens of complying with a wide variety of foreign laws;

 

   

potential difficulty in enforcing contracts;

 

   

being subject to U.S. laws and regulations governing international operations, including the U.S. Foreign Corrupt Practices Act and sanctions regimes;

 

   

being subject to foreign anti-bribery laws in the jurisdictions in which we operate, such as the UK Bribery Act;

 

   

reduced protection for intellectual property rights;

 

   

increased financial accounting and reporting complexity;

 

   

exposure to foreign currency exchange rate fluctuations;

 

   

exposure to local economic conditions;

 

   

limitations on the repatriation of funds or profits from foreign operations;

 

   

exposure to local political conditions, including adverse tax policies and civil unrest;

 

   

the risks of a natural disaster, public health crisis (including the occurrence of a contagious disease or illness, such as the coronavirus), an outbreak of war, the escalation of hostilities and acts of terrorism in the jurisdictions in which we operate; and

 

   

the disparate impact of the COVID-19 pandemic, including the measures taken to mitigate its spread, across various jurisdictions.

Additionally, in many countries outside of the United States, there has not been a historical practice of using third parties to provide sales and marketing services. Accordingly, while it is part of our strategy to expand into international markets, it may be difficult for us to grow our international business units on a timely basis, or at all.

The economic effects of the United Kingdom’s withdrawal from the European Union, or “Brexit,” may affect relationships with existing and future customers and could have an adverse impact on our business and operating results.

The United Kingdom withdrew from the European Union on January 31, 2020, maintaining status quo arrangements through a transition period scheduled to end on December 31, 2020. The transition period will be used to negotiate future trade arrangements between the United Kingdom and the European Union. The consequences of the United Kingdom withdrawing from the European Union and the terms of the future trade agreements and other relationships with the European Union continue to be highly uncertain. Brexit could potentially disrupt the free movement of goods, services and people between the United Kingdom and the European Union, undermine bilateral cooperation in key geographic areas and significantly disrupt trade between

 

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the United Kingdom and the European Union or other nations as the United Kingdom pursues independent trade relations. Because this is an unprecedented event, it remains unclear what long-term economic, financial, trade and legal implications Brexit will have and how it will affect the regulation applicable to our business globally and in the region. The impact on us will depend, in part, on the outcome of tariff, trade, regulatory and other negotiations. Any of these developments, along with any political, economic and regulatory changes that may occur, could cause political and economic uncertainty in Europe and internationally and could adversely affect our sales in Europe. The impact on us from Brexit will depend, in part, on the outcome of tariff, trade, regulatory and other negotiations. Furthermore, declines of local currencies of our international customers relative to the U.S. dollar as a result of Brexit, the COVID-19 pandemic or otherwise may impair the purchasing power of our international customers and could cause international buyers to decrease their participation in our marketplaces, and our reported international sales and earnings could be reduced. Finally, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replace or replicate, and those laws and regulations may be cumbersome, difficult or costly in terms of compliance. In addition, Brexit may lead other European Union member countries to consider referendums regarding their European Union membership. Any of these effects of Brexit, among others, could adversely affect our business, financial condition, operating results and cash flows.

We may be subject to unionization, work stoppages, slowdowns or increased labor costs.

Currently, none of our associates in the United States are represented by a union. However, our associates have the right under the National Labor Relations Act to choose union representation. If all or a significant number of our associates become unionized and the terms of any collective bargaining agreement were significantly different from our current compensation arrangements, it could increase our costs and adversely impact our profitability. Moreover, if a significant number of our associates participate in labor unions it could put us at increased risk of labor strikes and disruption of our operations or adversely affect our growth and results of operations. In December 2019, a union which commonly represents employees in the supermarket industry filed a petition with the National Labor Relations Board to represent approximately 120 employees who work in and around Boston. An election was held, and based on certified results of the election we prevailed in this election. Notwithstanding this successful election, we could face future union organization efforts or elections, which could lead to additional costs, distract management or otherwise harm our business.

If goodwill or other intangible assets in connection with our acquisitions become impaired, we could take significant non-cash charges against earnings.

We have made acquisitions to complement and expand the services we offer and intend to continue to do so when attractive acquisition opportunities exist in the market. As a result of prior acquisitions, including the acquisition by Topco in 2014 and the Daymon Acquisition, Inc., we have goodwill and intangible assets recorded on our balance sheet of $2.2 billion and $2.5 billion, respectively, as of September 30, 2020, as further described in Note 4 to our condensed consolidated financial statements for the nine months ended September 30, 2020. Under current accounting guidelines, we must assess, at least annually, whether the value of goodwill and other intangible assets has been impaired. For example, during the year ended December 31, 2018 and in connection with our annual impairment assessment of goodwill and intangible assets, we recognized non-cash goodwill and non-cash intangible asset impairment charges of $652.0 million and $580.0 million, respectively, in our sales reporting unit due to our revised future year earnings expectations, primarily related to a reduction in revenues in several of our in-store reset and merchandising programs in 2018.

We can make no assurances that we will not record any additional impairment charges in the future. Any future reduction or impairment of the value of goodwill or other intangible assets will similarly result in charges against earnings, which could adversely affect our reported financial results in future periods.

 

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Failures in, or incidents involving, our technology infrastructure could damage our business, reputation and brand and substantially harm our business and results of operations.

Our business is highly dependent on our ability to manage operations and process a large number of transactions on a daily basis. We rely heavily on our operating, payroll, financial, accounting and other data processing systems which require substantial support, maintenance and cost to maintain, and may be subject to disabilities, errors, or other harms. If our data and network infrastructure were to fail, or if we were to suffer an interruption or degradation of services in our data center, third-party cloud, and other infrastructure environments, we could lose important data, which could harm our business. Our facilities, as well as the facilities of third-parties that maintain or have access to our data or network infrastructure, are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, cyber security attacks, terrorist attacks, power losses, telecommunications failures and similar events. In the event that our or any third-party provider’s systems or service abilities are hindered by any of the events discussed above, our ability to operate may be impaired. A decision to close facilities without adequate notice, or other unanticipated problems, could adversely impact our operations. Any of the aforementioned risks may be augmented if our or any third-party provider’s business continuity and disaster recovery plans prove to be inadequate in preventing the loss of data, service interruptions, disruptions to our operations or damages to important systems or facilities. Our data center, third-party cloud, and managed service provider infrastructure also could be subject to break-ins, cyber-attacks, sabotage, intentional acts of vandalism and other misconduct, from a spectrum of actors ranging in sophistication from threats common to most industries to more advanced and persistent, highly organized adversaries. Any security breach, including personal data breaches, or incident, including cybersecurity incidents, that we experience could result in unauthorized access to, misuse of or unauthorized acquisition of our internal sensitive corporate data, such as financial data, intellectual property, or other competitively sensitive or confidential data. Such unauthorized access, misuse, acquisition, or modification of sensitive data may result in data loss, corruption or alteration, interruptions in our operations or damage to our computer hardware or systems or those of our employees, or customers. We have been the target of cyber-attacks involving the unauthorized breach or attempted breach of our systems. Although we have taken and continue to take steps to enhance our cybersecurity posture, we cannot assure that future cyber incidents will not occur or that our systems will not be targeted or breached in the future. Moreover, negative publicity arising from these types of disruptions could damage our reputation. We may not carry sufficient business interruption insurance to compensate us for losses that may occur as a result of any events that cause interruptions in our service. Significant unavailability of our services due to attacks could cause users to cease using our services and materially and adversely affect our business, prospects, financial condition and results of operations.

We use complex software in our technology infrastructure, which we seek to continually update and improve. Replacing such systems is often time-consuming and expensive, and can also be intrusive to daily business operations. Further, we may not always be successful in executing these upgrades and improvements, which may occasionally result in a failure of our systems. We may experience periodic system interruptions from time to time. Any slowdown or failure of our underlying technology infrastructure could harm our business and reputation, which could materially adversely affect our results of operations. Our disaster recovery plan or those of our third-party providers may be inadequate, and our business interruption insurance may not be sufficient to compensate us for the losses that could occur.

Failure to comply with federal, state and foreign laws and regulations relating to privacy, data protection and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection and consumer protection, could adversely affect our business and our financial condition.

A variety of federal, state and foreign laws and regulations govern the collection, use, retention, sharing and security of this information. The information, security and privacy requirements imposed by such governmental laws and regulations relating to privacy, data protection and consumer protection are increasingly demanding, are quickly evolving and are subject to potentially differing interpretations. These requirements may not be

 

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harmonized, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our practices. As a result, our practices may not have complied or may not comply in the future with all such laws, regulations, requirements and obligations. For example, the State of California adopted the California Consumer Protection Act of 2018 (“CCPA”), which became effective in 2020 and regulates the collection and use of consumers’ data. Compliance with the new obligations imposed by the CCPA depends in part on how particular regulators interpret and apply them. In November 2020, the State of California adopted the California Privacy Rights and Enforcement Act of 2020 which provides for expansion and amendment to the CCPA. We are also subject to additional international privacy rules, many of which, such as the General Data Privacy Regulation, or GDPR, and national laws supplementing the GDPR, such as in the United Kingdom, are significantly more stringent than those currently enforced in the United States. The GDPR requires companies to meet stringent requirements regarding the handling of personal data of individuals located in the European Economic Area (the “EEA”). In addition, there are mandatory data breach notification requirements. The GDPR also includes significant penalties for noncompliance, which may result in monetary penalties of up to the higher of €20.0 million or 4% of a group’s worldwide turnover for the preceding financial year for the most serious violations. The GDPR and other similar regulations require companies to give specific types of notice and informed consent is required for the placement of a cookie or similar technologies on a user’s device for online tracking for behavioral advertising and other purposes and for direct electronic marketing, and the GDPR also imposes additional conditions in order to satisfy such consent, such as a prohibition on pre-checked tick boxes and bundled consents. GDPR, CCPA and other similar laws and regulations, as well as any associated inquiries or investigations or any other government actions, may be costly to comply with, result in negative publicity, increase our operating costs, require significant management time and attention and subject us to remedies that may harm our business, including fines or demands or orders that we modify or cease existing business practices. Our systems may not be able to satisfy these changing requirements and manufacturer, retailer and associate expectations, or may require significant additional investments or time in order to do so.

We expect that new industry standards, laws and regulations will continue to be proposed regarding privacy, data protection and information security in many jurisdictions, including the European e-Privacy Regulation, which is currently in draft form. We cannot yet determine the impact such future laws, regulations and standards may have on our business. Complying with these evolving obligations is costly. For instance, expanding definitions and interpretations of what constitutes “personal data” (or the equivalent) within the United States, the EEA and elsewhere may increase our compliance costs and legal liability.

A significant data breach or any failure, or perceived failure, by us to comply with any federal, state or foreign privacy or consumer protection-related laws, regulations or other principles or orders to which we may be subject or other legal obligations relating to privacy or consumer protection could adversely affect our reputation, brand and business, and may result in claims, investigations, proceedings or actions against us by governmental entities or others or other penalties or liabilities or require us to change our operations and/or cease using certain data sets. Depending on the nature of the information compromised, we may also have obligations to notify users, law enforcement or payment companies about the incident and may need to provide some form of remedy, such as refunds, for the individuals affected by the incident.

The Take 5 Matter may lead to additional harms, risks and uncertainties for us, including litigation and governmental investigations, a reduction in revenue, a potential deterioration in our relationships or reputation and a loss in investor confidence.

As further described elsewhere in this prospectus, we restated our previously issued audited consolidated financial statements for the year ended December 31, 2018 based on our determination that revenue during those periods attributable to the Take 5 business had been recognized for services for which performance obligations were not performed on behalf of clients of Take 5 and that inaccurate reports were made to Take 5 clients about those services. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Take 5 Matter” and “Business — Legal Proceedings.”

 

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As a result of these matters, we may be subject to a number of additional harms, risks and uncertainties, including substantial unanticipated costs for accounting and legal fees in connection with or related to the Restatement, potential lawsuits by clients or other interested parties who claim to have been harmed by the misconduct at Take 5, other costs and fees related to the Take 5 Matter (in excess of the amounts already being offered as refunds), potential governmental investigations arising from the Take 5 Matter, a reduction in our current and anticipated revenue and a potential deterioration in our associate and client relationships or our reputation. In addition, if we do not prevail in any litigation or governmental investigation related to these matters, we could be subject to costs related to such litigation or governmental investigation, including equitable relief, civil monetary damages, treble damages, repayment or criminal penalties, which may not be covered by insurance or may materially increase our insurance costs. We have incurred and will continue to incur additional substantial defense and investigation costs regardless of the outcome of any such litigation or governmental investigation. In addition, there can be no assurance to what degree, if any, we will be able to recover any such costs or damages from the former owners of Take 5 or whether such former owners of Take 5 engaged in further unknown improper activities that may subject us to further costs or damages, including potential reputational harm. Likewise, such events have caused and may cause further diversion of our management’s time and attention. Any adverse outcome related to these matters cannot be predicted at this time, and may materially harm our business, reputation and/or financial condition, or the trading price of our securities.

Our business is seasonal in nature and quarterly operating results can fluctuate.

Our services are seasonal in nature, with the fourth fiscal quarter typically generating a higher proportion of our revenues than other fiscal quarters. Adverse events, such as deteriorating economic conditions, higher unemployment, higher gas prices, public transportation disruptions, public health crises (including the COVID-19 pandemic) or unanticipated adverse weather, could result in lower-than-planned sales during key revenue-producing seasons. For example, frequent or unusually heavy snowfall, ice storms, rainstorms, windstorms or other extreme weather conditions over a prolonged period could make it difficult for consumers to travel to retail stores or foodservice locations. Such events could lead to lower revenues, negatively impacting our financial condition and results of operations.

Our business is competitive, and increased competition could adversely affect our business and results of operations.

The sales, marketing and merchandising services industry is competitive. We face competition from a few other large, national or super-regional agencies as well as many niche and regional agencies. Remaining competitive in this industry requires that we closely monitor and respond to trends in all industry sectors. We cannot assure you that we will be able to anticipate and respond successfully to such trends in a timely manner. Moreover, some of our competitors may choose to sell services competitive to ours at lower prices by accepting lower margins and profitability or may be able to sell services competitive to ours at lower prices due to proprietary ownership of data or technical superiority, which could negatively impact the rates that we can charge. If we are unable to compete successfully, it could have a material adverse effect on our business, financial condition and our results of operations. If certain competitors were to combine into integrated sales, marketing and merchandising services companies, additional sales, marketing and merchandising service companies were to enter the market or existing participants in this industry were to become more competitive, including through technological innovation such as social media and crowdsourcing, it could have a material adverse effect on our business, financial condition or our results of operations.

Damage to our reputation could negatively impact our business and results of operations.

Our reputation and the quality of our brand are critical to our business and success in existing markets and will be critical to our success as we enter new markets. We believe that we have built our reputation on the high quality of our sales and marketing services, our commitment to our clients and our performance-based culture, and we must protect and grow the value of our brand in order for us to continue to be successful. Any incident that erodes client loyalty for our brand could significantly reduce its value and damage our business.

 

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Also, there has been a marked increase in the use of social media platforms and similar devices, including weblogs (blogs), social media websites, Twitter and other forms of internet-based communications that provide individuals with access to a broad audience of consumers and other interested persons. Many social media platforms immediately publish the content their subscribers and participants post, often without filters or checks on accuracy of the content posted. Information concerning us may be posted on such platforms at any time. Information posted may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects or business. The harm may be immediate without affording us an opportunity for redress or correction.

We rely on third parties to provide certain data and services in connection with the provision of our services.

We rely on third parties to provide certain data and services for use in connection with the provision of our services. For example, we contract with third parties to obtain the raw data on retail product sales and inventories. These suppliers of data may impose restrictions on our use of such data, fail to adhere to our quality control standards, increase the price they charge us for this data or refuse altogether to license the data to us. If we are unable to use such third-party data and services or if we are unable to contract with third parties, when necessary, our business, financial condition or our results of operations could be adversely affected. In the event that such data and services are unavailable for our use or the cost of acquiring such data and services increases, our business could be adversely affected.

We may not be able to adequately protect our intellectual property, which, in turn, could harm the value of our brands and adversely affect our business.

Our ability to implement our business plan successfully depends in part on our ability to further build brand recognition using our trade names, service marks, trademarks, proprietary products and other intellectual property, including our name and logos. We rely on U.S. and foreign trademark, copyright and trade secret laws, as well as license agreements, nondisclosure agreements and confidentiality and other contractual provisions to protect our intellectual property. Nevertheless, our competitors may develop similar business solutions and concepts, and adequate remedies may not be available in the event of an unauthorized use or disclosure of our trade secrets and other intellectual property.

The success of our business depends on our continued ability to use our existing trademarks and service marks to increase brand awareness and further develop our brand in both domestic and international markets. We have registered and applied to register our trade names, service marks and trademarks in the United States and foreign jurisdictions. However, the steps we have taken to protect our intellectual property in the United States and in foreign countries may not be adequate, and third parties may misappropriate, dilute, infringe upon or otherwise harm the value of our intellectual property. In addition, the laws of some foreign countries do not protect intellectual property to the same extent as the laws of the United States.

Third parties may also assert that we infringe, misappropriate or otherwise violate their intellectual property, particularly with respect to our digital solutions, and may sue us for intellectual property infringement. Even if we are successful in these proceedings, we may incur substantial costs, and the time and attention of our management and other personnel may be diverted in pursuing these proceedings. If a court finds that we infringe a third party’s intellectual property, we may be required to pay damages or be subject to an injunction. With respect to any third-party intellectual property that we use or wish to use in our business (whether or not asserted against us in litigation), we may not be able to enter into licensing or other arrangements with the owner of such intellectual property at a reasonable cost or on reasonable terms.

Consumer goods manufacturers and retailers, including some of our clients, are subject to extensive governmental regulation and we and they may be subject to enforcement in the event of noncompliance with applicable requirements.

Consumer goods manufacturers and retailers, including some of our clients, are subject to a broad range of federal, state, local and international laws and regulations governing, among other things, the research,

 

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development, manufacture, distribution, marketing and post-market reporting of consumer products. These include laws administered by the U.S. Food and Drug Administration (the “FDA”), the U.S. Drug Enforcement Administration, the U.S. Federal Trade Commission, the U.S. Department of Agriculture and other federal, state, local and international regulatory authorities. For example, certain of our clients market and sell products containing cannabidiol (“CBD”). CBD products are subject to a number of federal, state, local and international laws and regulations restricting their use in certain categories of products and in certain jurisdictions. In particular, the FDA currently prohibits marketing of food, beverages or dietary supplements that contain CBD. These laws are broad in scope and subject to evolving interpretations, which could require us to incur costs associated with new or modified compliance requirements or require us or our clients to alter or limit our activities, including marketing and promotion, of such products, or to remove them from the market altogether.

If a regulatory authority determines that we or our current or future clients have not complied with the applicable regulatory requirements, our business may be materially impacted and we or our clients could be subject to enforcement actions or loss of business. We cannot predict the nature of any future laws, regulations, interpretations or applications of the laws, nor can we determine what effect additional laws, regulations or administrative policies and procedures, if and when enacted, promulgated and implemented, could have on our business.

We may be subject to claims for products for which we are the vendor of record or may otherwise be in the chain of title.

For certain of our clients’ products, we become the vendor of record to the retailer or otherwise may be in the chain of title. For these products, we could be subject to potential claims for misbranded, adulterated, contaminated, damaged or spoiled products, or could be subject to liability in connection with claims related to infringement of intellectual property, product liability, product recalls or other liabilities arising in connection with the sale or marketing of these products. As a result, we could be subject to claims or lawsuits (including potential class action lawsuits), and we could incur liabilities that are not insured or exceed our insurance coverage or for which the manufacturer of the product does not indemnify us. Even if product claims against us are not successful or fully pursued, these claims could be costly and time consuming and may require our management to spend time defending the claims rather than operating our business.

A product that has been actually or allegedly misbranded, adulterated or damaged or is actually or allegedly defective could result in product withdrawals or recalls, destruction of product inventory, negative publicity and substantial costs of compliance or remediation. Any of these events, including a significant product liability judgment against us, could result in monetary damages and/or a loss of demand for our products, which could have an adverse effect on our business or results of operations.

We generate revenues and incur expenses throughout the world that are subject to exchange rate fluctuations, and our results of operations may suffer due to currency translations.

Our U.S. operations earn revenues and incur expenses primarily in U.S. dollars, while our international operations earn revenues and incur expenses primarily in Canadian dollars, British pounds or euros. Because of currency exchange rate fluctuations, including possible devaluations, we are subject to currency translation exposure on the results of our operations, in addition to economic exposure. There has been, and may continue to be, volatility in currency exchange rates as a result of the United Kingdom’s withdrawal from the European Union, especially between the U.S. dollar and the British pound. These risks could adversely impact our business or results of operations.

We are subject to risks related to recent proposals for reform regarding LIBOR.

Certain of our financial arrangements, including our Credit Facilities, and the New Senior Secured Credit Facilities are made at, or will be made at, variable rates that use the London Interbank Offered Rate, or LIBOR

 

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(or metrics derived from or related to LIBOR), as a benchmark for establishing the interest rate. LIBOR is the subject of recent proposals for reform. On July 27, 2017, the United Kingdom’s Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. These reforms may cause LIBOR to cease to exist, new methods of calculating LIBOR to be established or the establishment of an alternative reference rate(s). These consequences cannot be entirely predicted and could have an adverse impact on the market value for or value of LIBOR-linked securities, loans and other financial obligations or extensions of credit held by or due to us. Changes in market interest rates may influence our financing costs, returns on financial investments and the valuation of derivative contracts and could reduce our earnings and cash flows.

Fluctuations in our tax obligations and effective tax rate and realization of our deferred tax assets may result in volatility of our operating results.

We are subject to taxes by the U.S. federal, state, local and foreign tax authorities, and our tax liabilities will be affected by the allocation of expenses to differing jurisdictions. We record tax expense based on our estimates of future payments, which may include reserves for uncertain tax positions in multiple tax jurisdictions, and valuation allowances related to certain net deferred tax assets. At any one time, many tax years may be subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these matters. We expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur and exposures are evaluated. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

 

   

changes in the valuation of our deferred tax assets and liabilities;

 

   

expected timing and amount of the release of any tax valuation allowance;

 

   

tax effects of equity-based compensation;

 

   

changes in tax laws, regulations or interpretations thereof; or

 

   

future earnings being lower than anticipated in jurisdictions where we have lower statutory tax rates and higher than anticipated earnings in jurisdictions where we have higher statutory tax rates.

In addition, our effective tax rate in a given financial statement period may be materially impacted by a variety of factors including but not limited to changes in the mix and level of earnings, varying tax rates in the different jurisdictions in which we operate, fluctuations in the valuation allowance, deductibility of certain items or changes to existing accounting rules or regulations. Further, tax legislation may be enacted in the future which could negatively impact our current or future tax structure and effective tax rates. We may be subject to audits of our income, sales and other transaction taxes by U.S. federal, state, local and foreign taxing authorities. Outcomes from these audits could have an adverse effect on our operating results and financial condition.

Risks Related to Ownership of Our Common Stock

We are controlled by the Advantage Sponsors, Topco and the CP Sponsor, whose economic and other interests in our business may be different from yours.

Our authorized capital stock consists of 3,290,000,000 shares of common stock and 10,000,000 shares of preferred stock, and as of December 1, 2020, the Advantage Sponsors, Topco and the CP Sponsor collectively own 250,440,000 shares, or 79.90% (including 65.01% held by Topco), of our outstanding common stock and we have no shares of preferred stock issued and outstanding. Subject to applicable law, the Advantage Sponsors, through their direct ownership of our common stock and their ownership of equity interests of Topco, and the CP Sponsor are able to exert significant influence in the election of our directors and control actions to be taken by our stockholders, including amendments to the second amended and restated certificate of incorporation and approval of mergers, sales of substantially all of our assets, and other significant corporate transactions. It is possible that the interests of Topco, the Advantage Sponsors and the CP Sponsor may in some circumstances conflict with our interests and the interests of our other stockholders, including you.

 

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We are a controlled company within the meaning of the Nasdaq Stock Market LLC listing requirements and as a result, may rely on exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such corporate governance requirements.

Because of the voting power over our company held by Topco and the voting arrangement between such parties, we are considered a controlled company for the purposes of the Nasdaq Stock Market LLC (“NASDAQ”) listing requirements. As such, we are exempt from the corporate governance requirements that our board of directors, compensation committee, and nominating and corporate governance committee meet the standard of independence established by those corporate governance requirements. The independence standards are intended to ensure that directors who meet the independence standards are free of any conflicting interest that could influence their actions as directors.

We do not currently utilize the exemptions afforded to a controlled company, though we are entitled to do so. To the extent we utilize these exemptions, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of NASDAQ.

The anti-takeover provisions of our certificate of incorporation and bylaws could prevent or delay a change in control of us, even if such change in control would be beneficial to our stockholders.

Provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware law, could discourage, delay, or prevent a merger, acquisition, or other change in control of us, even if such change in control would be beneficial to our stockholders. These include:

 

   

authorizing the issuance of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt;

 

   

provision for a classified board of directors so that not all members of our board of directors are elected at one time;

 

   

not permitting the use of cumulative voting for the election of directors;

 

   

on and after the date on which we cease to be a “controlled company” within the meaning of the NASDAQ listing requirements:

 

   

permitting the removal of directors only for cause;

 

   

limiting the ability of stockholders to call special meetings;

 

   

requiring all stockholder actions to be taken at a meeting of our stockholders; and

 

   

requiring approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend, or repeal the proposed bylaws or repeal the provisions of the second amended and restated certificate of incorporation regarding the election and removal of directors; and

 

   

establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

In addition, although we have opted out of Section 203 of the Delaware General Corporation Law, or DGCL, our certificate of incorporation contain similar provisions providing that we may not engage in certain “business combinations” with any “interested stockholder” for a three-year period following the time that the stockholder became an interested stockholder, subject to certain exceptions. Generally, a “business combination” includes a merger, asset, or stock sale or other transaction resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person who, together with that person’s affiliates and associates, owns, or within the previous three years owned, 15% or more of our outstanding voting stock.

Under certain circumstances, this provision will make it more difficult for a person who would be an “interested stockholder” to effect various business combinations with us for a three-year period. These provisions also may

 

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have the effect of preventing changes in our board of directors and may make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests.

Moreover, our certificate of incorporation provide that Topco and its affiliates (including the Advantage Sponsors) do not constitute “interested stockholders” for purposes of this provision, and thus any business combination transaction between us and Topco and its affiliates would not be subject to the protections otherwise provided by this provision. See “Description of Our Securities.” Topco and its affiliates are not prohibited from selling a controlling interest in us to a third party and may do so without your approval and without providing for a purchase of your shares of common stock, subject to the lock-up restrictions applicable to Topco. Accordingly, your shares of common stock may be worth less than they would be if Topco and its affiliates did not maintain voting control over us.

For additional information about our relationship with Topco and its affiliates, please see “Certain Relationships and Related Party Transactions” elsewhere in this prospectus.

The provisions of our certificate of incorporation and bylaws requiring exclusive venue in the Court of Chancery in the State of Delaware or the federal district courts of the United States of America for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.

Our certificate of incorporation and bylaws require, to the fullest extent permitted by law, that (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the DGCL or the second amended and restated certificate of incorporation or the proposed bylaws, or (iv) any action asserting a claim against us governed by the internal affairs doctrine will have to be brought only in the Court of Chancery in the State of Delaware (or the federal district court for the District of Delaware or other state courts of the State of Delaware if the Court of Chancery in the State of Delaware does not have jurisdiction). Our certificate of incorporation and bylaws also require that the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act; however, there is uncertainty as to whether a court would enforce such provision, and investors cannot waive compliance with federal securities laws and the rules and regulations thereunder. Although we believe these provisions benefit us by providing increased consistency in the application of applicable law in the types of lawsuits to which they apply, the provisions may have the effect of discouraging lawsuits against our directors and officers. These provisions do not apply to any suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts of the United States have exclusive jurisdiction.

Because we have no current plans to pay cash dividends on our common stock, you may not receive any return on investment unless you sell your Class A common stock for a price greater than that which you paid for it.

We have no current plans to pay cash dividends on our common stock. The declaration, amount and payment of any future dividends on our Class A common stock will be at the discretion of our board of directors and will depend upon our results of operations, financial condition, capital requirements, and other factors that our board of directors deems relevant. The payment of cash dividends is also restricted under the terms of the agreements governing our debt and our ability to pay dividend may also be restricted by the terms of any future credit agreement or any securities we or our subsidiaries may issue.

The trading price of our Class A common stock may be volatile or may decline regardless of our operating performance.

The market prices for our Class A common stock are likely to be volatile and may fluctuate significantly in response to a number of factors, most of which we cannot control, including:

 

   

quarterly variations in our operating results compared to market expectations;

 

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changes in preferences of our clients;

 

   

announcements of new products or services or significant price reductions;

 

   

size of our public float;

 

   

fluctuations in stock market prices and volumes;

 

   

defaults on our indebtedness;

 

   

changes in senior management or key personnel;

 

   

the granting, vesting, or exercise of employee stock options, restricted stock, or other equity rights;

 

   

the payment of any dividends thereon in shares of our common stock;

 

   

changes in financial estimates or recommendations by securities analysts;

 

   

negative earnings or other announcements by us;

 

   

downgrades in our credit ratings;

 

   

material litigation or governmental investigations;

 

   

issuances of capital stock;

 

   

global economic, legal, and regulatory factors unrelated to our performance, including the COVID-19 pandemic; or

 

   

the realization of any risks described in this prospectus under “Risk Factors.”

In addition, in the past, stockholders have instituted securities class action litigation against companies following periods of market volatility. If we were involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be diverted from our business.

The unaudited pro forma financial information included herein is not indicative of what our actual financial position or results of operations would have been.

The unaudited pro forma financial information included herein is presented for illustrative purposes only and is not necessarily indicative of what our actual financial position or results of operations would have been had the Transactions been completed on the dates indicated.

Risks Related to Indebtedness

We need to continue to generate significant operating cash flow in order to fund acquisitions and to service our debt.

Our business currently generates operating cash flow, which we use to fund acquisitions to grow our business and to service our substantial indebtedness. If, because of loss of revenue, pressure on pricing from customers, increases in our costs (including increases in costs related to servicing our indebtedness or labor costs), general economic, financial, competitive, legislative, regulatory conditions or other factors, including any acceleration of the foregoing as a result of the COVID-19 pandemic, many of which are outside of our control our business generates less operating cash flow, we may not have sufficient funds to grow our business or to service our indebtedness.

If we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants in the agreements governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the lenders under our

 

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credit facilities could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to obtain waivers from the required lenders under our credit agreements to avoid being in default. If we or any of our subsidiaries breach the covenants under our credit agreements and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under our credit agreements, the lenders could exercise their rights as described above, and we could be forced into bankruptcy or liquidation.

Our substantial indebtedness could adversely affect our financial health, restrict our activities, and affect our ability to meet our obligations.

We have a significant amount of indebtedness. As of September 30, 2020, we had total indebtedness of $3.3 billion, excluding debt issuance costs, with an additional $67.7 million of availability under our New Revolving Credit Facility. As of September 30, 2020, on a pro forma basis after giving effect to the Transactions as if they had been consummated on that date, we had total indebtedness of $2.2 billion, excluding debt issuance costs, with an additional $67.7 million of availability under our New Revolving Credit Facility. The terms of our New Senior Secured Credit Facilities and our Senior Secured Notes contain customary covenants that restrict us from taking certain actions, such as incurring additional debt, permitting liens on pledged assets, making investments, making distributions to equity holders, prepaying junior debt, engaging in mergers or restructurings, and selling assets, among other things, which may restrict our ability to successfully execute on our business plan. For a more complete description of the covenants and material terms of the New Senior Secured Credit Facilities and our Notes, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Description of Credit Facilities” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Senior Secured Notes” in this prospectus.

Despite current indebtedness levels, we and our subsidiaries may still be able to incur additional indebtedness, which could increase the risks associated with our indebtedness.

We and our subsidiaries may be able to incur additional indebtedness in the future because the terms of our indebtedness do not fully prohibit us or our subsidiaries from doing so. Subject to covenant compliance and certain conditions, as of December 1, 2020, the New Revolving Credit Facility would have permitted additional borrowings of up to $299.6 million, which also would have been permitted pursuant to the Notes. In addition, we and our subsidiaries have, and will have, the ability to incur additional indebtedness as incremental facilities under our New Senior Secured Credit Facilities and we or our subsidiaries may issue additional notes in the future. If new debt is added to our current debt levels and our subsidiaries’ current debt levels, the related risks that we and they now face could increase.

Failure to maintain our credit ratings could adversely affect our liquidity, capital position, ability to hedge certain financial risks, borrowing costs, and access to capital markets.

Our credit risk is evaluated by the major independent rating agencies, and such agencies have in the past downgraded, and could in the future downgrade, our ratings. Our credit rating may impact the interest rates on any future indebtedness. We cannot assure you that we will be able to maintain our current credit ratings, and any additional, actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under further review for a downgrade, may have a negative impact on our liquidity, capital position, ability to hedge certain financial risks, and access to capital markets.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under our New Revolving Credit Facility and New Term Loan Facility are at variable rates of interest and expose us to interest rate risk. If interest rates were to increase, our debt service obligations on the

 

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variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. On a pro forma basis, assuming no other prepayments of our New Term Loan Facility and that our New Revolving Credit Facility is fully drawn (and to the extent that the London Interbank Offered Rate (“LIBOR”) is in excess of the 0.50% and 0.75% floors applicable to our New Revolving Credit Facility and New Term Loan Facility, respectively), each one-eighth percentage point change in interest rates would result in an approximately $2.1 million change in annual interest expense on the indebtedness under our New Senior Secured Credit Facilities. In the future, we may enter into interest rate swaps that involve the exchange of floating- for fixed-rate interest payments in order to reduce interest rate volatility or risk. However, we may not maintain interest rate swaps with respect to any of our variable rate indebtedness, and any swaps we enter into may not fully or effectively mitigate our interest rate risk.

General Risk Factors

Our business and financial results may be affected by various litigation and regulatory proceedings.

We are subject to litigation and regulatory proceedings in the normal course of business and could become subject to additional claims in the future. These proceedings have included, and in the future may include, matters involving personnel and employment issues, workers’ compensation, personal and property injury, disputes relating to acquisitions (including contingent consideration), governmental investigations and other proceedings. Some historical and current legal proceedings and future legal proceedings may purport to be brought as class actions on behalf of similarly situated parties including with respect to employment-related matters. We cannot be certain of the ultimate outcomes of any such claims, and resolution of these types of matters against us may result in significant fines, judgments or settlements, which, if uninsured, or if the fines, judgments and settlements exceed insured levels, could adversely affect our business or financial results. See “Business — Legal Proceedings.”

We are subject to many federal, state, local and international laws with which compliance is both costly and complex.

Our business is subject to various, and sometimes complex, laws and regulations, including those that have been or may be implemented in response to the COVID-19 pandemic. In order to conduct our operations in compliance with these laws and regulations, we must obtain and maintain numerous permits, approvals and certificates from various federal, state, local and international governmental authorities. We may incur substantial costs in order to maintain compliance with these existing laws and regulations. In addition, our costs of compliance may increase if existing laws and regulations are revised or reinterpreted or if new laws and regulations become applicable to our operations. These costs could have an adverse impact on our business or results of operations. Moreover, our failure to comply with these laws and regulations, as interpreted and enforced, could lead to fines, penalties or management distraction or otherwise harm our business.

Our insurance may not provide adequate levels of coverage against claims.

We believe that we maintain insurance customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure. Further, insurance may not continue to be available to us on acceptable terms, if at all, and, if available, coverage may not be adequate. If we are unable to obtain insurance at an acceptable cost or on acceptable terms, we could be exposed to significant losses.

We have incurred and will continue to incur increased costs as a result of becoming a public company.

As a public company, we have incurred and will continue to incur significant legal, accounting, insurance, and other expenses that we have not incurred as a private company, including costs associated with public company

 

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reporting requirements. We also have incurred and will incur costs associated with the Sarbanes-Oxley Act and related rules implemented by the SEC. The expenses incurred by public companies for reporting and corporate governance purposes generally have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. In estimating these costs, we took into account expenses related to insurance, legal, accounting, and compliance activities, as well as other expenses not currently incurred. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on our board committees, or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our Class A common stock, fines, sanctions, and other regulatory action and potentially civil litigation.

Our management has limited experience in operating a public company.

Our executive officers have limited experience in the management of a publicly traded company. Our management team may not successfully or effectively manage our transition to a public company that will be subject to significant regulatory oversight and reporting obligations under federal securities laws. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities which will result in less time being devoted to the management and growth of the Company. We may not have adequate personnel with the appropriate level of knowledge, experience, and training in the accounting policies, practices or internal controls over financial reporting required of public companies in the United States. The development and implementation of the standards and controls necessary for the Company to achieve the level of accounting standards required of a public company in the United States may require costs greater than expected. It is possible that we will be required to expand our employee base and hire additional employees to support our operations as a public company which will increase our operating costs in future periods.

An active, liquid trading market for our Class A common stock may not develop.

There has not been a public sustained market for our Class A common stock. We cannot predict the extent to which investor interest in our company will lead to the further development of a trading market on NASDAQ or otherwise in the future or how active and liquid that market may become. If an active and liquid trading market does not develop, you may have difficulty selling any of our common stock. Among other things, in the absence of a liquid public trading market:

 

   

you may not be able to liquidate your investment in shares of Class A common stock;

 

   

you may not be able to resell your shares of Class A common stock at or above the price attributed to them in the business combination;

 

   

the market price of shares of Class A common stock may experience significant price volatility; and

 

   

there may be less efficiency in carrying out your purchase and sale orders.

If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our common stock, the price of our Class A common stock could decline.

The trading market for our Class A common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. If no or few analysts commence coverage of us, the trading price of our stock could be negatively affected. Even with analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our stock, the price of our Class A common stock could decline. If one or more of these analysts cease to cover our common stock, we could lose visibility in the market for our stock, which in turn could cause our Class A common stock price to decline.

 

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Substantial future sales of our Class A common stock, or the perception in the public markets that these sales may occur, may depress our stock price.

Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional shares. Certain shares of our common stock are freely tradable without restriction under the Securities Act, except for any shares of our common stock that may be held or acquired by our directors, executive officers, and other affiliates, as that term is defined in the Securities Act, which are be restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available. Topco, the Advantage Sponsors, the CP Sponsor and members of our management have rights, subject to certain conditions, to require us to file registration statements covering Topco’s shares of our common stock or to include shares in registration statements that we may file for ourselves or other stockholders.

Following the expiration of the period covered by, or the waiver of the, lock-up agreement between Topco, the Advantage Sponsors and the CP Sponsor entered into in connection with the business combination, those parties will have the right to sell or distribute the shares of our common stock they hold. Those shares may be sold in the public market subject to applicable restrictions under the federal securities laws, including the limitations under Rule 144 of the Securities Act (particularly those applicable to our directors, officers, and affiliates, which restrict the manner and volume of shares that may be sold). Those shares may also be sold in registered offerings pursuant to the registration rights described elsewhere in this prospectus. Any such sales, including sales of a substantial number of shares or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our Class A common stock. We may also issue shares of our common stock or securities convertible into our common stock from time to time in connection with financings, acquisitions, investments, or otherwise. Any such issuance could result in ownership dilution to you as a stockholder and cause the trading price of our common stock to decline.

 

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USE OF PROCEEDS

All of the Class A common stock offered by the Selling Stockholders pursuant to this prospectus will be sold by the Selling Stockholders for their respective accounts. We will not receive any of the proceeds from these sales.

We will receive up to an aggregate of approximately $129.4 million from the exercise of the Warrants, assuming the exercise in full of all of the Warrants for cash. We expect to use the net proceeds from the exercise of the Warrants for general corporate purposes. We will have broad discretion over the use of proceeds from the exercise of the Warrants. There is no assurance that the holders of the Warrants will elect to exercise any or all of such Warrants. To the extent that the Warrants are exercised on a “cashless basis,” the amount of cash we would receive from the exercise of the Warrants will decrease.

DETERMINATION OF OFFERING PRICE

The offering price of the shares of Class A common stock underlying the Warrants offered hereby is determined by reference to the exercise price of the Warrants of $11.50 per share. The Warrants are listed on the Nasdaq Global Select Market under the symbol “ADVWW.”

We cannot currently determine the price or prices at which shares of our Class A common stock or Warrants may be sold by the Selling Stockholders under this prospectus.

 

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MARKET INFORMATION FOR COMMON STOCK AND DIVIDEND POLICY

Market Information

Our Class A common stock and Warrants are currently listed on the Nasdaq Global Select Market under the symbols “ADV” and “ADVWW,” respectively. Prior to the consummation of the Transactions, our Class A common stock and our Warrants were listed on the Nasdaq Capital Market under the symbols “CPAA” and “CPAAW,” respectively. As of October 28, 2020, following the completion of the Transactions, there were 51 holders of record of our Class A common stock and 2 holders of record of our Warrants.

Dividend Policy

We have not paid any cash dividends on the Class A common stock to date. We may retain future earnings, if any, for future operations, expansion and debt repayment and has no current plans to pay cash dividends for the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of the Board and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that the Board may deem relevant. In addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur. We do not anticipate declaring any cash dividends to holders of the Class A common stock in the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Plans

As of September 30, 2020, we did not have any securities authorized for issuance under equity compensation plans. In connection with the Transactions, our stockholders approved the Advantage Solutions Inc. 2020 Incentive Award Plan (the “2020 Plan”) and the Advantage Solutions Inc. 2020 Employee Stock Purchase Plan (the “2020 ESPP”).

We intend to file one or more registration statements on Form S-8 under the Securities Act to register the shares of Class A common stock issued or issuable under the 2020 Plan and the 2020 ESPP. Any such Form S-8 registration statement will become effective automatically upon filing. We expect that the initial registration statement on Form S-8 will cover shares of Class A common stock underlying the 2020 Plan and the 2020 ESPP. Once these shares are registered, they can be sold in the public market upon issuance, subject to applicable restrictions.

 

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SELECTED FINANCIAL INFORMATION

The following table presents Advantage’s selected historical financial information for the periods presented.

The selected consolidated statement of comprehensive income (loss) data of Advantage for the years ended

December 31, 2019, 2018 and 2017 and selected consolidated balance sheet data of Advantage as of December 31, 2019 and 2018 are derived from Advantage’s audited consolidated financial statements included in this prospectus. The selected condensed consolidated statement of comprehensive income (loss) data of Advantage for the three months and the nine months ended September 30, 2020 and 2019 and selected condensed consolidated balance sheet data of Advantage as of September 30, 2020 are derived from Advantage’s unaudited interim condensed consolidated financial statements included elsewhere in this prospectus.

The results of operations for the periods presented below are not necessarily indicative of the results to be

expected for any future period and the results for any interim period are not necessarily indicative of the results that may be expected for a full fiscal year. The information set forth below should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and the consolidated financial statements and the accompanying notes included elsewhere in this prospectus. Advantage’s historical results are not necessarily indicative of the results that may be expected for any future period. In the opinion of Advantage’s management, the following unaudited condensed consolidated financial statement data reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the financial position and results of operations for those periods.

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
    Year Ended December 31,  
        2020             2019         2020     2019     2019(a)     2018(b)     2017(c)  
(in thousands, except share and per share data)                                          

Revenues

  $ 784,345     $ 981,682     $ 2,305,284     $ 2,772,187     $ 3,785,063     $ 3,707,628     $ 2,416,927  

Cost of revenues

    625,363       809,243       1,881,979       2,323,341       3,163,443       3,108,651       1,892,694  

Selling, general, and administrative expenses

    11,855       38,042       133,480       134,786       175,373       152,493       135,441  

Impairment of goodwill and indefinite-lived assets

    —         —         —         —         —         1,232,000       —    

(Recovery from) loss on Take 5

    —         —         (7,700     —         —         79,165       —    

Depreciation and amortization

    58,556       57,872       177,513       174,424       232,573       225,233       179,990  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    695,774       905,157       2,185,272       2,632,551       3,571,389       4,797,542       2,208,125  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    88,571       76,525       120,012       139,636       213,674       (1,089,914     208,802  

Interest expense, net

    48,243       57,762       151,558       178,471       232,077       229,643       179,566  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    40,328       18,763       (31,546     (38,835     (18,403     (1,319,557     29,236  

Provision for (benefit from) income taxes

    3,623       (3,968     (8,714     (4,277     1,353       (168,334     (358,806
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    36,705       22,731       (22,832     (34,558     (19,756     (1,151,223     388,042  

Less: net income attributable to noncontrolling interest

    756       142       331       649       1,416       6,109       1,637  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to stockholder of Advantage Solutions Inc.

  $ 35,949     $ 22,589     $ (23,163   $ (35,207   $ (21,172   $ (1,157,332   $ 386,405  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share of common stock:

             

Basic

  $ 287,595     $ 180,713     $ (185,304   $ (281,655   $ (169,386   $ (9,258,643   $ 3,829,953  

Diluted

  $ 287,595     $ 180,713     $ (185,304   $ (281,655   $ (169,386   $ (9,258,643   $ 3,829,953  

Weighted-average shares of common stock:

             

Basic

    125       125       125       125       125       125       101  

Diluted

    125       125       125       125       125       125       101  

 

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     September 30,
2020
     December 31,  
     2019      2018      2017  
(in thousands)                            

Cash and cash equivalents

   $ 486,396      $ 184,224      $ 141,590      $ 186,706  

Total assets(d)(e)(f)

     6,101,359        6,012,683        5,994,931        7,378,991  

Long-term debt, net of current portion

     3,287,349        3,172,087        3,181,465        3,052,932  

Stockholder’s equity

     1,647,720        1,669,806        1,669,314        2,847,366  

 

(a)

In the year ended December 31, 2019, Advantage completed four business acquisitions, all of which were accounted for under the acquisition method of accounting, and were reflected in Advantage’s results of operations for a portion of the period.

(b)

In the year ended December 31, 2018, Advantage completed nine business acquisitions, all of which were accounted for under the acquisition method of accounting, and were reflected in Advantage’s results of operations for a portion of the period.

(c)

In the year ended December 31, 2017, Advantage completed 13 business acquisitions, all of which were accounted for under the acquisition method of accounting, and were reflected in Advantage’s results of operations for a portion of the period.

(d)

As of January 1, 2019, Advantage adopted Accounting Standard Update, or ASU, 2016-02, Leases, and its related amendments. ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date. As a result of the adoption, “Other Assets,” “Other accrued expenses,” and “Other long-term liabilities” in the Condensed Consolidated Balance Sheets increased by $98.8 million, $33.5 million and $65.4 million, respectively.

(e)

During the year ended December 31, 2018, Advantage recognized non-cash goodwill and non-cash intangible asset impairment charges of $652.0 million and $580.0 million, respectively, in Advantage’s sales segment due to revised future year earnings expectations, primarily related to a reduction in revenues in several of Advantage’s in-store reset and merchandising programs in 2018. Total assets as of December 31, 2018 reflect the recognition of additional goodwill of $76.2 million and other intangible assets, net of $49.6 million, in each case, as recognized in connection with the nine acquisitions completed during the year.

(f)

As of December 31, 2017, total assets reflect the recognition of additional goodwill of $460.3 million and other intangible assets, net of $331.1 million, in each case, as recognized in connection with the Daymon Acquisition.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Description of the Merger

Legacy Advantage and Conyers Park are providing the following unaudited pro forma condensed combined financial information to aid you in your analysis of the financial aspects of the Transactions. The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X and should be read in conjunction with the accompanying notes.

On September 7, 2020, Legacy Advantage, Conyers Park, Merger Sub, and Topco entered into the Merger Agreement, pursuant to which, among other things, Merger Sub merged into and with Legacy Advantage on October 28, 2020 (the “Closing”), with Legacy Advantage surviving as a wholly owned subsidiary of Conyers Park. At the Closing, (i) Topco, the sole stockholder of Legacy Advantage, received 203,750,000 shares of Class A common stock, at a deemed value of $10.00 per share, excluding the 5,000,000 Performance Shares issued to Topco which remain subject to forfeiture unless and until vesting upon the achievement of a market performance condition described further below and (ii) the 11,250,000 shares of Class B common stock, par value $0.0001 per share, held by the CP Sponsor, that automatically converted to shares of Class A common stock.

In connection with the entry into the Merger Agreement, Conyers Park also entered into the Subscription Agreements with certain investors (the “PIPE Investors”), pursuant to which, among other things, Conyers Park agreed to issue and sell in a private placement shares of Class A common stock for a purchase price of $10.00 per share. The PIPE Investors, other than the CP Sponsor and the Advantage Sponsors and their affiliates, have agreed to purchase an aggregate of 50,000,000 shares of Class A common stock. Certain of the Advantage Sponsors or their affiliates and the CP Sponsor have agreed to purchase an aggregate of 20,000,000 shares of Class A common stock, and, at their sole discretion, 15,540,000 shares. The shares of Class A common stock purchased by the PIPE Investors in the private placement are referred to as the “PIPE Shares” and the aggregate purchase price paid for the PIPE Shares is referred to as the “PIPE Investment Amount.” The PIPE Investment (and the funding of the PIPE Investment Amount) is contingent upon and is consummated substantially concurrently with the Closing in accordance with the terms of the Subscription Agreements. At the Closing, the PIPE Investment was consummated, and 85,540,000 shares of Class A common stock was issued for aggregate gross proceeds of $855.4 million.

In connection with the Merger, Advantage Sales & Marketing Inc. (“ASM”), an indirect wholly-owned subsidiary of the Company entered into the New Senior Secured Credit Facilities, consisting of a $1.325 billion New Term Loan Facility and a $400.0 million New Revolving Facility. Advantage has borrowed an additional $100.0 million under the New Revolving Credit Facility and issued $775.0 million of the Notes.

At the Closing, the cash balance then existing in Conyers Park’s trust account, combined with the net proceeds of the PIPE Investment, the Notes, and the New Senior Secured Credit Facilities, was used to repay the First Lien Term Loans (as defined in Legacy Advantage’s first lien credit agreement), the Second Lien Term Loans (as defined in Legacy Advantage’s second lien credit agreement) and Legacy Advantage’s accounts receivable securitization facility (the “AR Facility”) and pay fees and expenses of Legacy Advantage and Conyers Park in connection with the Merger.

Accounting for the Merger

The Merger is accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Conyers Park is treated as the “acquired” company for financial reporting purposes. This determination was primarily based on the current stockholder of Legacy Advantage, Topco, having a relative majority of the voting power of the combined entity, the operations of Legacy Advantage prior to the Merger

 

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comprising the only ongoing operations of the combined entity, and senior management of Legacy Advantage comprising the senior management of the combined entity. Accordingly, for accounting purposes, the financial statements of the combined entity represent a continuation of the financial statements of Legacy Advantage with the acquisition being treated as the equivalent of Legacy Advantage issuing stock for the net assets of Conyers Park, accompanied by a recapitalization. The net assets of Conyers Park are stated at historical cost, with no goodwill or other intangible assets recorded.

Basis of Pro Forma Presentation

The unaudited pro forma condensed combined financial information is for illustrative purposes only. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma condensed combined financial information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined entity will experience. Conyers Park and Legacy Advantage had not had any historical relationships prior to the Merger. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

The unaudited pro forma condensed combined balance sheet as of September 30, 2020 combines the unaudited condensed balance sheet of Conyers Park as of September 30, 2020 with the unaudited condensed consolidated balance sheet of Legacy Advantage as of September 30, 2020, giving effect to the Transactions as if they had been consummated on that date.

The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2020 and the year ended December 31, 2019 combine the historical results of Conyers Park and Legacy Advantage for such periods as if the Transactions had been consummated on January 1, 2019.

The unaudited pro forma condensed combined financial information was derived from and should be read in conjunction with the following historical financial statements and the accompanying notes, which are included elsewhere in this prospectus:

 

   

The historical unaudited condensed financial statements of Conyers Park as of and for the nine months ended September 30, 2020 and the historical audited financial statements of Conyers Park as of and for the year ended December 31, 2019; and

 

   

The historical unaudited condensed consolidated financial statements of Legacy Advantage as of and for the nine months ended September 30, 2020 and the historical audited consolidated financial statements of Legacy Advantage as of and for the year ended December 31, 2019.

The foregoing historical financial statements have been prepared in accordance with GAAP.

The unaudited pro forma condensed combined financial information should also be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included in this prospectus.

The historical financial information has been adjusted to give pro forma effect to events that are (i) related and/or directly attributable to the Transactions, (ii) factually supportable, and (iii) with respect to the unaudited pro forma condensed combined statements of operations, are expected to have a continuing impact on the results of the combined entity. The adjustments in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information necessary for an accurate understanding of the combined entity upon consummation of the Transactions.

The unaudited condensed combined pro forma financial information excludes the potential effects of 5,000,000 Performance Shares issued to Topco at the Closing, which remain subject to vesting and forfeiture. The Performance Shares will vest, if at all, if the closing price for the Class A common stock equals or exceeds

 

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$12.00 per share (subject to adjustments for any cash or in-kind dividend paid on the Class A common stock or other split or consolidation of the Class A common stock) for any period of 20 trading days out of 30 consecutive trading days during the five-year period after the Closing. Topco will not have the right to vote the Performance Shares unless and until the vesting condition for the Performance Shares is achieved. We believe the potential impact of the Performance Shares is not factually supportable as of the date of this prospectus.

The unaudited pro forma condensed combined financial information has been prepared assuming the following:

 

   

The issuance of 70,000,000 shares of Class A common stock in the PIPE Investment, including 20,000,000 shares to certain of the Advantage Sponsors or their affiliates and the CP Sponsor;

 

   

The redemption of 32,114,818 shares of Class A common stock at a redemption price of $10.06 per share approximated based on the trust account figures as of September 30, 2020;

 

   

The election by certain of the Advantage Sponsors or their affiliates and the CP Sponsor to purchase 15,540,000 shares of Class A common stock at a price of $10.00 per share, and;

 

   

The borrowing of $1.325 billion under the New Term Loan Facility, the issuance of $775.0 million of the Notes, and the borrowing of $100.0 million under the New Revolving Credit Facility by ASM.

After giving effect to the redemption of 32,114,818 shares of Class A common stock in connection with the Merger and the Transactions, as set forth above, Topco holds 203,750,000 shares of Class A common stock and certain of the Advantage Sponsors or their affiliates (excludes the 5,000,000 Performance Shares issued to Topco, which remain subject to vesting and forfeiture) and the CP Sponsor directly hold 35,540,000 shares of Class A common stock immediately after the Closing. Topco, the Advantage Sponsors or their affiliates and the CP Sponsor hold approximately 79.90% of Class A common stock as of such time. A summary of pro forma ownership of Class A common stock is as follows:

 

Common Ownership

   Number of
Shares
     %
Ownership
 

Topco(1)

     203,750,000        65.01

Public stockholders

     12,885,182        4.11

PIPE Investors — Non-affiliated holders

     50,000,000        15.95

PIPE Investors — the CP Sponsor, Advantage Sponsors and their affiliates

     35,540,000        11.34

Founder Shares — the CP Sponsor and pre-closing Conyers Park directors(2)

     11,250,000        3.59
  

 

 

    

 

 

 

Total shares outstanding(1)(2)(3)

     313,425,182        100.00
  

 

 

    

 

 

 

 

(1)

Excludes the 5,000,000 Performance Shares issued to Topco under the Merger Agreement, which remain subject to vesting upon satisfaction of a market performance condition after the Closing, and until vesting Topco is not able to vote or sell such shares.

(2)

Includes 100,000 shares of Conyers Park Class B common stock held by members of the Conyers Park board of directors prior to the Closing and converted into Class A common stock upon the Closing.

(3)

Excludes the outstanding 18,583,333 warrants to purchase Class A common stock, as such securities are not exercisable until 30 days after the Closing.

If the actual facts are different than these assumptions, then the amounts and shares outstanding in the unaudited pro forma condensed combined financial information will be different. The unaudited pro forma condensed combined financial information is based upon currently available information, estimates, and assumptions that management believes are reasonable as of the date hereof.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED

BALANCE SHEET AS OF SEPTEMBER 30, 2020

 

(in thousands)    Conyers
Park
    Legacy
Advantage
    Pro Forma
Adjustments
         Pro Forma
Combined
 

ASSETS

           

Current assets

           

Cash and cash equivalents

   $ 515     $ 486,396     $ (335,702   a    $ 151,209  

Restricted cash

     —         17,429       —            17,429  

Accounts receivable

     —         553,584       —            553,584  

Prepaid expenses and other current assets

     432       125,409       1,231     k      127,072  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total current assets

     947       1,182,818       (334,471        849,294  

Marketable securities held in Trust Account

     453,742       —         (453,742   c      —    

Property and equipment, net

     —         85,069       —            85,069  

Goodwill

     —         2,153,855       —            2,153,855  

Other intangible assets, net

     —         2,489,465       —            2,489,465  

Investments in unconsolidated affiliates

     —         113,804       —            113,804  

Other assets

     —         76,348       4,924     k      81,272  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total assets

   $ 454,689     $ 6,101,359     $ (783,289      $ 5,772,759  
  

 

 

   

 

 

   

 

 

      

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY            

Current liabilities

           

Current portion of long-term debt

   $ —       $ 26,170     $ (12,920   d    $ 13,250  

Accounts payable

     4,621       171,321       (4,621   b      171,321  

Accounts payable — related party

     248       —         (248   b      —    

Accrued compensation and benefits

     —         157,436       (3,144   l      154,292  

Other accrued expenses

     —         110,314       (1,148   e      109,166  

Deferred revenues

     —         49,762       —            49,762  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total current liabilities

     4,869       515,003       (22,081        497,791  

Long-term debt, net of current portion

     —         3,287,349       (1,176,994   d      2,110,355  

Deferred underwriting commissions

     15,750       —         (15,750   f      —    

Deferred income tax liabilities, net

     —         502,891       —            502,891  

Other long-term liabilities

     —         148,396       —            148,396  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities

     20,619       4,453,639       (1,214,825        3,259,433  
  

 

 

   

 

 

   

 

 

      

 

 

 

Commitments

           

Class A common stock

     429,070       —         (429,070   h      —    

Stockholders’ Equity

           

Class A common stock

     —         —         32     i      32  

Class B common stock

     1       —         (1   i      —    

Additional paid in capital

     6,591       2,339,141       913,053     g      3,258,785  

Retained earnings (accumulated deficit)

     (1,592     (768,458     (52,478   j      (822,528

Loans to Topco

     —         (6,320     —            (6,320

Accumulated other comprehensive loss

     —         (8,500     —            (8,500
  

 

 

   

 

 

   

 

 

      

 

 

 

Total equity attributable to stockholders

     5,000       1,555,863       860,606          2,421,469  

Nonredeemable noncontrolling interest

     —         91,857       —            91,857  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total stockholders’ equity

     5,000       1,647,720       860,606          2,513,326  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities and stockholders’ equity

   $ 454,689     $ 6,101,359     $ (783,289      $ 5,772,759  
  

 

 

   

 

 

   

 

 

      

 

 

 

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020

 

     Conyers
Park
    Legacy
Advantage
    Pro Forma
Adjustments
         Pro Forma
Combined
       
(in thousands except share and per share data)                                    

Revenues

   $ —       $ 2,305,284     $ —          $ 2,305,284    

Cost of revenues (exclusive of depreciation and amortization shown separately below)

     —         1,881,979       —            1,881,979    

Selling, general, and administrative expenses

     5,440       133,480       (4,891   l      134,029    

Recovery from Take 5

     —         (7,700     —            (7,700  

Depreciation and amortization

     —         177,513       —            177,513    
  

 

 

   

 

 

   

 

 

      

 

 

   

Total expenses

     5,440       2,185,272       (4,891        2,185,821    
  

 

 

   

 

 

   

 

 

      

 

 

   

Operating (loss) income

     (5,440     120,012       4,891          119,463    

Interest income

     1,705       436       (1,705   m      436    

Interest expense

     —         151,994       (46,147   d      105,847    
  

 

 

   

 

 

   

 

 

      

 

 

   

Income (loss) before income taxes

     (3,735     (31,546     49,333          14,052    

Income tax expense (benefit)

     327       (8,714     10,360     n      1,973    
  

 

 

   

 

 

   

 

 

      

 

 

   

Net income (loss)

     (4,062     (22,832     38,973          12,079    

Less: net loss attributable to noncontrolling interest

     —         331       —            331    
  

 

 

   

 

 

   

 

 

      

 

 

   

Net income (loss) attributable to stockholders

   $ (4,062   $ (23,163   $ 38,973        $ 11,748    
  

 

 

   

 

 

   

 

 

      

 

 

   

Weighted average shares outstanding of Class A common stock

     45,000,000         268,425,182     o      313,425,182       o  
  

 

 

          

 

 

   

Basic and diluted net income (loss) per share, Class A common stock

   $ 0.01            $ 0.04       o  
  

 

 

          

 

 

   

 

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Table of Contents

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2019

 

     Conyers
Park
    Legacy
Advantage
    Pro Forma
Adjustments
           Pro Forma
Combined
       
(in thousands except share and per share data)                                      

Revenues

   $ —       $ 3,785,063     $ —          $ 3,785,063    

Cost of revenues (exclusive of depreciation and amortization shown separately below)

     —         3,163,443       —            3,163,443    

Selling, general, and administrative expenses

     379       175,373       (934     l        174,818    

Depreciation and amortization

     —         232,573       —            232,573    
  

 

 

   

 

 

   

 

 

      

 

 

   

Total expenses

     379       3,571,389       (934        3,570,834    
  

 

 

   

 

 

   

 

 

      

 

 

   

Operating (loss) income

     (379     213,674       934          214,229    

Interest income

     3,579       926       (3,579     m        926    

Interest expense

     —         233,003       (87,647     d        145,356    
  

 

 

   

 

 

   

 

 

      

 

 

   

Income (loss) before income taxes

     3,200       (18,403     85,002          69,799    

Income tax expense

     731       1,353       17,849       n        19,933    
  

 

 

   

 

 

   

 

 

      

 

 

   

Net income (loss)

     2,469       (19,756     67,153          49,866    

Less: net income attributable to noncontrolling interest

     —         1,416       —            1,416    
  

 

 

   

 

 

   

 

 

      

 

 

   

Net income (loss) attributable to stockholders

   $ 2,469     $ (21,172   $ 67,153        $ 48,450    
  

 

 

   

 

 

   

 

 

      

 

 

   

Weighted average shares outstanding of Class A common stock

     45,000,000         268,425,182       o        313,425,182       o  
  

 

 

          

 

 

   

Basic and diluted net income per share, Class A common stock

   $ 0.05            $ 0.15       o  
  

 

 

          

 

 

   

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

1. Basis of Presentation

The pro forma adjustments have been prepared as if the Transactions had been consummated on September 30, 2020 in the case of the unaudited pro forma condensed combined balance sheet and on January 1, 2019, in the case of the unaudited pro forma condensed combined statements of operations.

The unaudited pro forma condensed combined financial information have been prepared assuming the following methods of accounting in accordance with GAAP.

The Merger is accounted for as a reverse recapitalization in accordance with GAAP. Accordingly, for accounting purposes, the financial statements of the combined entity represent a continuation of the financial statements of Legacy Advantage with the acquisition being treated as the equivalent of Legacy Advantage issuing stock for the net assets of Conyers Park, accompanied by a recapitalization. The net assets of Conyers Park are stated at historical cost, with no goodwill or other intangible assets recorded.

The pro forma adjustments represent management’s estimates based on information available as of the date of this prospectus and are subject to change as additional information becomes available and additional analyses are performed. Management considers this basis of presentation to be reasonable under the circumstances.

2. Adjustments and assumptions to the Unaudited Pro Forma Condensed Combined Balance Sheet

Adjustments included in the unaudited pro forma financial statements are as follows:

 

  (a)

Represents the assumed pro forma adjustments to cash upon the Closing:

 

(in thousands)           

PIPE Investment Amount(1)

   $ 855,400    

Cash released from Conyers Park’s trust account

     453,742     c

Proceeds from new borrowings under the New Term Loan Facility and issuance of the Notes

     2,100,000     d

Assumed debt issuance costs of New Senior Secured Credit Facilities and the Notes

     (85,910   d

Repayment of First Lien Term Loans and Second Lien Term Loans, including $1,148 of accrued interest

     (3,209,271   d, e

Retirement of AR Facility

     (120,000   d

Transaction fees and expenses(2)

     (46,719   g

Outstanding underwriting commissions incurred by Conyers Park in connection with the Conyers Park’s initial public offering that were deferred until the Closing

     (15,750   f

Transaction bonuses including anniversary payments to the CEO of Advantage and termination of Management Incentive Plan upon the Closing

     (39,250   j, k

Settlement of certain Conyers assets and liabilities upon the Closing

     (4,869   b

Class A common stock redemption

     (323,075  

New Revolving Facility — drawn portion

     100,000    
  

 

 

   

Pro forma adjustments

   $ (335,702  
  

 

 

   

 

(1)

Reflect the proceeds from the 85,540,000 PIPE Shares issued at $10.00 per share price to the PIPE Investors in connection with the Closing.

(2)

One-time direct and incremental transaction costs anticipated to be incurred prior to, or concurrent with, the Closing are reflected in the unaudited pro forma condensed combined balance sheet as a direct reduction to the combined entity’s additional paid-in capital (“APIC”) and are assumed to be cash settled.

 

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Table of Contents
  (b)

Represents the settlement of certain Conyers Park liabilities upon the Closing:

 

(in thousands)             

Accounts payable

   $ 4,621    

Accounts payable — related party

     248    
  

 

 

   

Pro forma adjustment

   $ 4,869       a  
  

 

 

   

 

  (c)

Represents the reclassification of the marketable securities held in Conyers Park’s trust account to cash and cash equivalents to liquidate these investments and make the funds available for general use by Legacy Advantage upon the Closing.

 

  (d)

Represents the assumed pro forma adjustments to long-term debt upon the Closing:

 

(in thousands)       

Proceeds from New Term Loan Facility and the Notes

   $ 2,100,000  

Repayment of First Lien Term Loans and Second Lien Term Loans(1)

     (3,190,159

Retirement of AR Facility

     (120,000

Deferred financing fees on New Term Loan Facility and the Notes

     (79,755

Proceeds from the New Revolving Credit Facility

     100,000  
  

 

 

 

Net change to long-term debt

     (1,189,914

Pro forma adjustment to current portion of long-term debt

     (12,920
  

 

 

 

Pro forma adjustment to long-term debt, net of current portion

   $ (1,176,994

 

(1)

Includes payment of $1.1 million for accrued interest made in connection with a repayment of the First Lien Term Loans, Second Lien Term Loans and AR Facility.

The adjustments to interest expense for the nine months ended September 30, 2020 and year ended December 31, 2019 resulting from the New Senior Secured Credit Facilities and the Notes is determined as follows:

 

(in thousands, excluding interest rates)    For the Nine Months
Ended September 30,
2020
    For the Year Ended
December 31, 2019
 

Interest expense from New Term Loan Facility, assuming an interest rate of 6.0%

   $ 55,325     $ 78,272  

Interest expense from the Notes, at an interest rate of 6.5%

     38,411       50,935  
  

 

 

   

 

 

 

Interest expense from New Term Loan Facility and the Notes

   $ 93,736     $ 129,207  

New Revolving Facility — available portion

   $ 300,000     $ 300,000  

Commitment fees on New Revolving Credit Facility — available portion

     0.375     0.375

New Revolving Facility — drawn portion

   $ 100,000     $ 100,000  

Assumed interest rate on New Revolving Credit Facility — drawn portion

     2.750     2.750
  

 

 

   

 

 

 

Interest on New Revolving Credit Facility

   $ 2,906     $ 3,875  
  

 

 

   

 

 

 

Total interest rate expense

   $ 96,642     $ 133,082  

Amortization of deferred financing fees

     9,205       12,274  

Less: Legacy Advantage’s historical interest expense

     (151,994     (233,003
  

 

 

   

 

 

 

Pro forma adjustment

   $ (46,147   $ (87,647
  

 

 

   

 

 

 

 

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Table of Contents

ASM has borrowed $1.325 billion aggregate principal amount of the New Term Loan Facility, net of estimated issuance costs of $60.1 million in connection with the Merger. The New Term Loan facility will mature in seven years and accrue interest at LIBOR (which is subject to the 0.75% floor applicable to the New Term Loan Facility), plus an applicable margin of 5.25%. Principal payments equal to 0.25% of the original principal amount will be due quarterly, assuming no advance repayment is made. Assumed deferred financing costs of $60.1 million will be amortized over the remaining term of the loan.

ASM also borrowed $775.0 million of the Notes, which will mature in eight years and accrue interest at a fixed rate payable semi-annually of 6.50%. There are no amortization payments prior to the scheduled maturity of the Notes, assuming the optional redemption right is not exercised. Assumed deferred financing costs of $19.7 million will be amortized over the remaining term of the Notes.

Additionally, in connection with the Merger, ASM entered into a New Revolving Credit Facility that provides for a $400.0 million facility that matures in five years and accrues interest at LIBOR (which is subject to the 0.50% floor applicable to the New Revolving Credit Facility), plus an applicable margin of 2.25% and commitment fees of up to 0.375% for any amounts available to borrow. ASM borrowed $100.0 million at an assumed interest rate of 2.75%.

The pro forma adjustments reflect interest expense of $58.2 million and $82.1 million from the New Term Loan Facility and the New Revolving Credit Facility for the nine months ended September 30, 2020 and December 31, 2019, respectively, based on an assumed per annum interest rate. As the actual aggregate principal amount and the per annum interest rate may be different than the assumed amount, a change in the aggregate principal amount or the per annum interest rate may result in annual interest expense that is significantly different than the pro forma annual interest expense. For each 0.125% increase (or decrease) in the actual interest rate, interest expense for nine months ended September 30, 2020 and the year ended December 31, 2019 and, would increase (or decrease) by approximately $1.2 million and $1.7 million, respectively, based on the assumed principal amount borrowed.

(e) Represents the pro forma adjustments to remove accrued interest of $1.1 million related to the repayment of the First Lien Term Loans, Second Lien Term Loans and AR Facility.

 

  (f)

Represents the pro forma adjustments to remove the deferred underwriter commissions paid upon the Closing.

 

  (g)

Represents the pro forma adjustments to APIC:

 

(in thousands)           

Elimination of Conyers Park’s historical accumulated deficit

   $ (1,592   j

Conversion of Conyers Park’s redeemable Class A common stock to permanent equity, net of redemption, net of common stock, at a par value of $0.0001 per share

     105,994     h, i

Issuance of PIPE Shares, net of common stock, at par value of $0.0001 per share

     855,391     a, i

Transaction fees and expenses

     (46,719   a

Issuance of Class A common stock, at par value of $0.0001 per share to Topco

     (21   i
  

 

 

   

Pro forma adjustment, net of common stock, at par value of $0.0001 per share

   $ 913,053    
  

 

 

   

 

  (h)

Represents the redemption and the automatic conversion on a one-for-one basis of the outstanding redeemable Class A common stock of Conyers Park to permanent equity.

 

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Table of Contents
  (i)

Represents the pro forma adjustments to Class A common stock, at par value of 0.0001 per share, of the combined entity:

 

(in thousands)       

Conversion of Conyers Park Class B common stock into Class A common stock

   $ 1  

Conversion of redeemable Class A common stock to permanent equity, net of redemption

     1  

Issuance of PIPE Shares issued

     9  

Issuance of Class A common stock issued to Topco

     21  
  

 

 

 

Pro forma adjustment

   $ 32  
  

 

 

 

 

  (j)

Represents the elimination of Conyers Park’s historical accumulated deficit with a corresponding adjustment to APIC, write-off of $18.0 million deferred financing fees related to repayment of the First Lien Term Loans and Second Lien Term Loans, and $36.1 million of transaction bonuses, including anniversary payments to the CEO of Advantage and termination of Management Incentive Plan upon the Closing, net of $3.1 million of retention bonuses accrued.

 

  (k)

Represents deferred financing fees paid in connection with the New Revolving Credit Facility.

3. Adjustments and assumptions to the Unaudited Pro Forma Condensed Combined Statements of Operations

 

  (l)

Represents the elimination of (i) the anniversary payments to the CEO of Advantage (thereafter, there will be no future anniversary payments owed to the CEO of Advantage), and (ii) the retention incentive bonus under the Management Incentive Plan (thereafter there will be no future payment obligations under the Management Incentive Plan).

 

  (m)

Represents the elimination of the historical interest income earned on marketable securities held in Conyers Park’s trust account.

 

  (n)

Represents the pro forma adjustment for income taxes, applying the U.S. federal corporate income tax rate of 21.0%.

 

  (o)

Represents the pro forma adjustments for basic and diluted weighted average shares of common stock outstanding and earnings per share. Refer to the table below for the calculation of the pro forma weighted average shares of common stock outstanding and pro forma earnings per share.

 

     For the Nine Months
Ended September 30,
2020
     For the Year Ended
December 31, 2019
 

(in thousands, except share and per share amounts)

             

Numerator

     

Net income

   $ 11,748      $ 48,450  

Denominator

     

Topco(1)

     203,750,000        203,750,000  

Public stockholders

     12,885,182        12,885,182  

PIPE Investors — Non-affiliated holders

     50,000,000        50,000,000  

PIPE Investors — the CP Sponsor, Advantage Sponsors and their affiliates

     35,540,000        35,540,000  

Founder Shares — the CP Sponsor and pre-closing Conyers Park directors(2)

     11,250,000        11,250,000  
  

 

 

    

 

 

 

Basic and diluted weighted average shares of common stock outstanding(1)(2)(3)

     313,425,182        313,425,182  
  

 

 

    

 

 

 

Earnings per share

     

Basic and diluted

   $ 0.04      $ 0.15  
  

 

 

    

 

 

 

 

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Table of Contents
(1)

Excludes the 5,000,000 Performance Shares issued to Topco under the Merger Agreement, which remain subject to vesting upon satisfaction of a market performance condition after the Closing, and until vesting Topco is not able to vote or sell such shares.

(2)

Includes 100,000 shares of Conyers Park Class B common stock held by the members of the Conyers Park board of directors prior to the Closing and converted into Class A common stock upon the Closing.

(3)

Excludes the outstanding 18,583,333 warrants to purchase Class A common stock, as such securities are not exercisable until 30 days after the Closing.

 

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

We are a leading business solutions provider to consumer goods manufacturers and retailers. Our customizable suite of technology-enabled sales and marketing solutions is designed to help manufacturers and retailers across a broad range of channels drive consumer demand, increase sales and achieve operating efficiencies.

We have two reportable segments: sales and marketing.

Within the sales segment, which generated approximately 52% of our total revenues in the year ended December 31, 2019 and 66% of our total revenues in the nine months ended September 30, 2020, 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 we represent are adequately stocked and properly displayed.

Through our marketing segment, which generated approximately 48% of our total revenues in the year ended December 31, 2019 and 34% of our total revenues in the nine months ended September 30, 2020, we help brands and retailers reach consumers through two main categories within the marketing segment. The first and largest is our retail experiential business, also known as in-store sampling or demonstrations, where we create manage highly customized large scale sampling programs (both in-store and online) for leading retailers. The second business is our collection of specialized agency businesses, 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.

Recent Developments

Business Combination with Conyers Park

On September 7, 2020 Legacy Advantage entered into an agreement and plan of merger (as amended, modified, supplemented or waived, the “Merger Agreement”), with Conyers Park II Acquisition Corp., now known as Advantage Solutions Inc. (“Conyers Park”), CP II Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Conyers Park (“Merger Sub”), and Karman Topco L.P., a Delaware limited partnership (“Topco”).

In September 2020 and in connection with its entry into the Merger Agreement, Conyers Park entered into subscription agreements (collectively, the “Subscription Agreements”) pursuant to which certain investors, including the CP Sponsor and participating equityholders of Topco (the “Advantage Sponsors”), agreed to purchase Common Stock at a purchase price of $10.00 per share (the “PIPE Investment”).

On October 27, 2020, Conyers Park held a special meeting of stockholders (the “Special Meeting”), at which the Conyers Park stockholders considered and adopted, among other matters, a proposal to approve the business combination, including (a) adopting the Merger Agreement and (b) approving the other transactions contemplated by the Merger Agreement and related agreements. Pursuant to the terms of the Merger Agreement, following the Special Meeting, on October 28, 2020 (the “Closing Date”), Merger Sub was merged with and into Legacy Advantage with Legacy Advantage being the surviving company in the merger (the “Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Transactions”). On the Closing Date, the PIPE Investment was consummated, and 85,540,000 shares of Common Stock were sold for aggregate gross proceeds of $855.4 million. Of the 85,540,000, the CP Sponsor and the Advantage Sponsors acquired 35,540,000 shares of Common Stock, and other purchasers acquired 50,000,000 shares of Common Stock.

 

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Table of Contents

Holders of 32,114,818 shares of Conyers Park’s Class A common stock (“Common Stock”) sold in its initial public offering properly exercised their right to have such shares redeemed for a full pro rata portion of the trust account holding the proceeds from Conyers Park’s initial public offering, calculated as of two business days prior to the consummation of the business combination, $10.06 per share, or $323.1 million in the aggregate (collectively, the “Redemptions”).

As a result of the Merger, among other things, pursuant to the Merger Agreement, Conyers Park issued to Topco, as sole stockholder of Legacy Advantage prior to the Merger, an aggregate consideration equal to (a) 203,750,000 shares of Common Stock, and (b) 5,000,000 shares of Common Stock that will remain subject to forfeiture unless and until vesting upon the achievement of a market performance condition.

After giving effect to the Transactions, the Redemptions, and the consummation of the PIPE Investment, there were currently 313,425,182 shares of Common Stock issued and outstanding as of the Closing Date. The Common Stock and outstanding warrants of Conyers Park (renamed “Advantage Solutions Inc.”) commenced trading on the Nasdaq Stock Market under the symbols “ADV” and “ADVWW”, respectively, on October 29, 2020.

As noted above, an aggregate of $323.1 million was paid from the Conyers Park’s trust account to holders in connection with the Redemption, and the remaining balance immediately prior to the closing of the Transactions of approximately $131.2 million remained in the trust account. The remaining amount in the trust account was used to fund the Transactions, including the entry into the New Senior Secured Credit Facilities.

In connection with the Merger, the Company repaid and terminated the Credit Facilities, at a total cost of $86.0 million. This amount was repaid by the Company in a combination of (i) cash on hand, (ii) proceeds from certain private investments in the Company’s common stock, (iii) the entry by Advantage Sales & Marketing, Inc., a wholly owned subsidiary of the Company (“ASM”), into (a) a new senior secured asset-based revolving credit facility, which permits borrowing in an aggregate principal amount of up to $400.0 million, subject to borrowing base capacity (the “New Revolving Credit Facility”), of which $100.0 million of principal amount was borrowed as of October 28, 2020, and (b) a new secured first lien term loan credit facility in an aggregate principal amount of $1.325 billion (the “New Term Loan Facility” and, together with the New Revolving Credit Facility, the “New Senior Secured Credit Facilities”), and (iv) the issuance by Advantage Solutions FinCo LLC, a direct subsidiary of ASM (“Finco”), of $775.0 million aggregate principal amount of 6.50% Senior Secured Notes due 2028 (the “Senior Secured Notes”).

The Merger will be accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Conyers Park will be treated as the “acquired” company for financial reporting purposes. This determination was primarily based on the current stockholder of the Company, Topco, having a relative majority of the voting power of the combined entity, the operations of Legacy Advantage prior to the Merger comprising the only ongoing operations of the combined entity, and senior management of Legacy Advantage comprising the senior management of the combined entity. Accordingly, for accounting purposes, the financial statements of the combined entity will represent a continuation of the financial statements of Legacy Advantage with the acquisition being treated as the equivalent of Legacy Advantage issuing stock for the net assets of Conyers Park, accompanied by a recapitalization. The net assets of Conyers Park will be stated at historical cost, with no goodwill or other intangible assets recorded.

Impacts of the COVID-19 Pandemic

The COVID-19 pandemic has had, and is likely to continue to have, a severe and unprecedented impact on the world. Measures to prevent its spread, including government-imposed restrictions on large gatherings, closures of face-to-face events, “shelter in place” health orders and travel restrictions have had a significant effect on certain of our business operations. In response to these business disruptions, we have taken several actions including reducing certain of our discretionary expenditures, eliminating non-essential travel, terminating

 

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or amending certain office leases, furloughing or instituting pay reductions and deferrals or terminations for some of our employees, particularly with respect to COVID-19 impacted operations.

These measures to prevent the spread of COVID-19 have adversely impacted certain areas of our business operations, including our in-store sampling, foodservice and European operations. Most notably, we temporarily suspended all in-store sampling in all U.S. locations starting in March and April as well as in certain international locations. More recently, we have started to re-open in-store sampling activities in certain retailers in certain geographies on a prudent, phased basis. While the restrictions relating to in-store sampling services have materially and adversely affected our results of operations in the third quarter, we have been successful in growing other adjacent services in our experiential marketing business such as online grocery pick-up sampling and virtual product demonstrations, both of which have seen increased adoption and demand.

We have also experienced a positive impact in our headquarter sales and private label services where, due to the large increase in consumer purchases at retail to support incremental at-home consumption, our operations have experienced a favorable increase in volume and demand. Additionally, our e-commerce services have benefited due to the increase in consumer purchasing with online retailers.

These differing impacts are reflected in our financial results for the nine months ended September 30, 2020. Compared to the nine months ended September 30, 2019, revenues, operating (loss) income and Adjusted EBITDA for our sales segment increased 5.2%, 8.8% and 21.8% in the nine months ended September 30, 2020, respectively, while revenues, operating (loss) income and Adjusted EBITDA for our marketing segment decreased 40.5%, 52.7% and 38.9% in the nine months ended September 30, 2020, respectively.

We also took various measures during the nine months ended September 30, 2020 to strengthen liquidity. For example, in accordance with the CARES Act, we have deferred the deposit and payment of our portion of Social Security taxes. We have also received government aid from various countries in support of our local operations, including a government loan from Japan. Also, following September 30, 2020, we consummated the Merger with Conyers Park and the related Transactions, including the refinancing of our existing indebtedness through the entry into the New Senior Secured Credit Facilities and the issuance of the Senior Secured Notes. As of September 30, 2020, we had $486.4 million in cash and cash equivalents. See “ —Liquidity and Capital Resources.” For more information, see “Risk Factors—The COVID-19 pandemic and the measures taken to mitigate its spread have had, and are likely to continue to have, an adverse effect on our business, results of operations, financial condition and liquidity” in this prospectus.

We expect the ultimate significance of the impact of the pandemic on our financial condition, results of operations, or cash flows will be dictated by the length of time that such circumstances continue, which will depend on the currently unknowable extent and duration of the COVID-19 pandemic and the nature and effectiveness of governmental and public actions taken in response.

Summary

Our financial performance for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019 includes:

 

   

Revenues decreased by $197.3 million, or 20.1%, to $784.3 million;

 

   

Operating income increased by $12.0 million, or 15.7%, to $88.6 million;

 

   

Net income increased by $14.0 million, or 61.5%, to $36.7 million; and

 

   

Adjusted EBITDA decreased by $8.6 million, or 5.9%, to $136.3 million.

Our financial performance for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 includes:

 

   

Revenues decreased by $466.9 million, or 16.8%, to $2,305.3 million;

 

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Operating income decreased by $19.6 million, or 14.1%, to $120.0 million;

 

   

Net loss decreased by $11.7 million, or 33.9%, to $22.8 million; and

 

   

Adjusted EBITDA decreased by $5.1 million, or 1.4%, to $354.6 million.

We completed three business acquisitions during the nine months ended September 30, 2020, including two sales agencies, which have been incorporated into our sales segment and a marketing agency, which has been incorporated into our marketing segment. The aggregate purchase price for these acquisitions was $72.1 million, of which $51.4 million was paid in cash, $17.2 million in contingent consideration and $3.5 million in holdbacks.

Factors Affecting Our Business and Financial Reporting

There are a number of factors, in addition to the impact of the ongoing COVID-19 pandemic, that affect the performance of our business and the comparability of our results from period to period including:

 

   

Organic Growth. Part of our strategy is to generate organic growth by expanding our existing client relationships, continuing to win new clients, pursuing channel expansion and new industry opportunities, enhancing our digital technology solutions, developing our international platform, delivering operational efficiencies and expanding into logical adjacencies. We believe that by pursuing these organic growth opportunities we will be able to continue to enhance our value proposition to our clients and thereby grow our business.

 

   

Acquisitions. We have grown and expect to continue to grow our business in part by acquiring quality businesses, both domestic and international. In December 2017, we completed the Daymon Acquisition, a leading provider of retailer-centric services, including private label development and management, merchandising and experiential marketing services. In addition to the acquisition of Daymon, we have completed 63 acquisitions since January 2014, ranging in purchase price from approximately $0.3 million to $98.5 million. Many of our acquisition agreements include contingent consideration arrangements, which are described below. We have completed acquisitions at what we believe are attractive purchase prices and have regularly structured our agreements to result in the generation of long-lived tax assets, which have in turn reduced our effective purchase prices when incorporating the value of those tax assets. We continue to look for strategic and tuck-in acquisitions that can be completed at attractive purchase prices

 

   

Contingent Consideration. Many of our acquisition agreements include contingent consideration arrangements, which are generally based on the achievement of financial performance by the operations attributable to the acquired businesses. The contingent consideration arrangements are based upon our valuations of the acquired businesses and are intended to share the investment risk with sellers if projected financial results are not achieved. The fair values of these contingent consideration arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. For each transaction, we estimate the fair value of contingent consideration payments as part of the initial purchase price. We review and assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could differ materially from the initial estimates. Changes in the estimated fair value of contingent consideration liabilities related to the time component of the present value calculation are reported in “Interest expense, net.” Adjustments to the estimated fair value related to changes in all other unobservable inputs are reported in “Selling, general and administrative expenses” in the Consolidated Statements of Comprehensive (Loss) Income.

 

   

Depreciation and Amortization. As a result of the acquisition of Advantage Sales & Marketing Inc. by Topco on July 25, 2014 (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. The amortization of such intangible assets recorded in our consolidated financial statements has a significant impact on our operating income (loss) and net income (loss). Our historical acquisitions have increased, and future acquisitions likely

 

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will increase, our intangible assets. We do not believe the amortization expense associated with the intangibles created from our purchase accounting adjustments reflect a material economic cost to our business. Unlike depreciation expense which has an economic cost reflected by the fact that we must re-invest in property and equipment to maintain the asset base delivering our results of operations, we do not have any capital re-investment requirements associated with the acquired intangibles, such as client relationships and trade names, that comprise the majority of the finite-lived intangibles that create our amortization expense.

 

   

Foreign Exchange Fluctuations. Our financial results are affected by fluctuations in the exchange rate between the U.S. dollar and other currencies, primarily the Canadian dollar, Euro and British pound sterling, due to our operations in such foreign jurisdictions. See also “— Quantitative and Qualitative Disclosure of Market Risk — Foreign Currency Risk.

 

   

Seasonality. Our quarterly results are seasonal in nature, with the fourth quarter typically generating a higher proportion of our revenues than other fiscal quarters, as a result of higher consumer spending. We generally record slightly lower revenues in the first quarter of each year, as our clients begin to roll out new programs for the year, and consumer spending generally is less in the first quarter than other quarters. Timing of our clients’ marketing expenses, associated with marketing campaigns and new product launches, can also result in fluctuations from one quarter to another.

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 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 acquisition strategy, 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 financial performance 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, 2018 for a business that included a contingent consideration arrangement, we would consider revenues from the acquired business from July 1, 2018 to June 30, 2019 to be acquired revenues. We generally consider growth attributable to the financial performance of an acquired business after the 12-month anniversary of the date of acquisition to be organic.

 

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In limited cases, including the acquisition of Daymon, when the acquisition of an acquired business does not include a contingent consideration arrangement, or we 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, 2018 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, 2017 to June 30, 2018 to be acquired revenues during the period from July 1, 2018 to June 30, 2019, 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, 2018 for a business, we would consider the amount of revenues from the divested business from July 1, 2017 to June 30, 2018 to be subtracted from acquired revenues during the period from July 1, 2018 to June 30, 2019.

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, occupancy costs for corporate personnel, 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.

We also expect to incur additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for general and director and officer insurance, investor relations, and professional services.

Interest Expense

Interest expense relates primarily to borrowings under our first lien credit agreement (the “First Lien Credit Agreement” (including the Revolving Credit Facility)) and our second lien credit agreement (the “Second Lien Credit Agreement”) as described below. See “— Liquidity and Capital Resources.

 

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Depreciation and Amortization

Amortization Expense

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.

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. We recognized a non-cash intangible asset impairment charge of $580.0 million during the year ended December 31, 2018, related to our sales trade name resulting from the 2014 Topco Acquisition considered to be indefinite lived. The impairment charge has been reflected in “Impairment of goodwill and indefinite-lived assets” in our Consolidated Statements of Comprehensive (Loss) Income, in addition to a $652.0 million non-cash goodwill impairment charge in the sales reporting unit.

Depreciation Expense

Depreciation expense relates to the property and equipment that we own, which represented less than 1% of our total assets at September 30, 2020.

Income Taxes

Income tax (benefit) expense and our effective tax rates can be affected by many factors, including state apportionment factors, our acquisition strategy, 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/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.

Prior to the consummation of the Transactions (including our entry into the New Senior Secured Credit Facilities), our principal sources of liquidity have been cash flows from operations, borrowings under the Revolving Credit Facility (as herein defined) and other debt. Following the Transactions, our principal sources of liquidity will be cash flows from operations, borrowings under the New Revolving Credit Facility, and other debt. Our principal uses of cash are operating expenses, working capital requirements, acquisitions and repayment of debt.

Adjusted EBITDA and Adjusted EBITDA by Segment

Adjusted EBITDA and Adjusted EBITDA by segment are supplemental financial measures of our operating performance that are not recognized under GAAP. 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,

 

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(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.

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. None of Adjusted EBITDA or Adjusted EBITDA by segment should be considered as an alternative for our most directly comparable measure presented on a GAAP basis.

The most directly comparable GAAP measure to each of Adjusted EBITDA is net income (loss). For a reconciliation of Adjusted EBITDA to net income (loss) and Adjusted EBITDA by segment to operating income (loss), see below.

Adjusted Net Income

Adjusted Net Income is a non-GAAP financial measure. 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.

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.

The most directly comparable GAAP measure to Adjusted Net Income is net income (loss). For a reconciliation of Adjusted Net Income to net income (loss), see below.

Take 5 Matter

On April 1, 2018, we acquired certain assets and liabilities of Take 5 for total consideration of $81.6 million, including the fair value of contingent consideration of $4.6 million and holdback liabilities of $0.8 million. As a result of a review of internal allegations related to inconsistency of data provided by Take 5 to its clients, we commenced an investigation into Take 5’s operations. In July 2019, as a result of our investigation, we determined that revenues during the fiscal year ended December 31, 2018 attributable to the Take 5 business had been recognized for services that were not performed on behalf of clients of Take 5 and that inaccurate reports were made to Take 5 clients about those services. As a result of our investigation into Take 5, in July 2019, we terminated all operations of Take 5, including the use of its associated trade names and the offering of its services to its clients and are offering refunds to Take 5 clients of collected revenues attributable to Take 5 since our acquisition of Take 5.

As a result of the Take 5 Matter, we determined that Take 5’s reported revenues were improperly recognized during the year ended December 31, 2018. We also determined that the amounts previously assigned

 

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to the assets of Take 5 acquired on the acquisition date had been improperly established based on inaccurate assumptions as to the fair value of the assets acquired.

We also voluntarily disclosed information about the misconduct at Take 5 to the United States Attorney’s Office and the Federal Bureau of Investigation and committed to cooperate in any governmental investigation, and we are currently in arbitration proceedings with the sellers of Take 5, in which both us and the sellers of Take 5 have brought claims against each other. For more information, see “Business — Legal Proceedings.”

As a result of the Take 5 Matter, we may be subject to a number of harms, risks and uncertainties, including substantial unanticipated costs for accounting and legal fees in connection with or related to the Restatement, potential lawsuits by clients or other interested parties who claim to have been harmed by the misconduct at Take 5, other related costs and fees (in excess of the amounts already being offered as refunds), potential resulting governmental investigations and a reduction in our current and anticipated revenues. In addition, if we do not prevail in any litigation or governmental investigation related to these matters, we could be subject to costs related to such litigation or governmental investigation, including equitable relief, civil monetary damages, treble damages, repayment or criminal penalties, which may not be covered by insurance or may materially increase our insurance costs. We have incurred and will continue to incur additional substantial defense and investigation costs regardless of the outcome of any such litigation or governmental investigation. In addition, there can be no assurance to what degree, if any, we will be able to recover any such costs or damages from the former owners of Take 5, or whether such former owners of Take 5 engaged in further unknown improper activities that may subject us to further costs or damages, including potential reputational harm. For additional information, see also “Risk Factors — Risks Related to the Company’s Business and Industry

The Take 5 Matter may lead to additional harms, risks and uncertainties for us, including litigation and governmental investigations, a reduction in our current or anticipated revenues, a potential deterioration in our relationships or reputation and a loss in investor confidence.

In connection with the Take 5 Matter, we have removed previously recognized revenues of $18.7 million for the year ended December 31, 2018, attributable to the Take 5 business. Additionally, we recognized a $79.2 million loss on Take 5 in our Statement of Comprehensive (Loss) Income during the year ended December 31, 2018, representing the $76.2 million in cash we paid for Take 5, together with restated acquired liabilities of $3.0 million.

During the three months ended September 30, 2020 and 2019, the Selling, general and administrative expenses attributable to Take 5 was $1.2 million and $6.3 million, respectively.

During the nine months ended September 30, 2020 and 2019, the Selling, general and administrative expenses attributable to Take 5 was $2.8 million and $15.0 million, respectively.

For the nine months ended September 30, 2020 and 2019, we incurred $2.8 million and $6.3 million, respectively, of costs associated with the investigation and remediation activities, primarily, professional fees and other related costs.

 

    Three Months Ended     Nine Months Ended  
(in thousands)   September 30, 2020     September 30, 2019     September 30, 2020     September 30, 2019  

Historical operating costs of Take 5

  $ —       $ —       $ —       $ 8,648  

Investigation related costs

    1,386       3,484       2,346       3,484  

Remediation actions and other related cost

    (167     2,860       473       2,860  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total cost associated with Take 5 Matter

  $ 1,219     $ 6,344     $ 2,819     $ 14,992  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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On May 15, 2020, we received $7.7 million from our representation and warranty insurance policy related to the acquisition of Take 5 for claims related to the Take 5 Matter, the maximum aggregate recovery under the policy.

Results of Operations for the Three Months Ended and Nine Months Ended September 30, 2020 and 2019

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
(amounts in thousands)   2020     2019     2020     2019  

Revenues

  $ 784,345       100.0   $ 981,682       100.0   $ 2,305,284       100.0   $ 2,772,187       100.0

Cost of revenues

    625,363       79.7     809,243       82.4     1,881,979       81.6     2,323,341       83.8

Selling, general, and administrative expenses

    11,855       1.5     38,042       3.9     133,480       5.8     134,786       4.9

Recovery from Take 5

    —         0.0     —         0.0     (7,700     (0.3 )%      —         0.0

Depreciation and amortization

    58,556       7.5     57,872       5.9     177,513       7.7     174,424       6.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    695,774       88.7     905,157       92.2     2,185,272       94.8     2,632,551       95.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    88,571       11.3     76,525       7.8     120,012       5.2     139,636       5.0

Interest expense, net

    48,243       6.2     57,762       5.9     151,558       6.6     178,471       6.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    40,328       5.1     18,763       1.9     (31,546     (1.4 )%      (38,835     (1.4 )% 

Provision for (benefit from) income taxes

    3,623       0.5     (3,968     (0.4 )%      (8,714     (0.4 )%      (4,277     (0.2 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 36,705       4.7   $ 22,731       2.3   $ (22,832     (1.0 )%    $ (34,558     (1.2 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Financial Data

               

Adjusted Net Income(1)

  $ 65,606       8.4   $ 65,825       6.7   $ 131,257       5.7   $ 108,495       3.9

Adjusted EBITDA(1)

  $ 136,253       17.4   $ 144,862       14.8   $ 354,648       15.4   $ 359,733       13.0

 

(1)

Adjusted EBITDA and Adjusted Net Income are financial measures that are not calculated in accordance with GAAP. For a discussion of our presentation of Adjusted EBITDA and Adjusted Net Income and reconciliations of net (loss) income to Adjusted EBITDA and Adjusted Net Income, see “— Non-GAAP Financial Measures.”

Comparison of the Three Months Ended September 30, 2020 and 2019

Revenues

 

     Three Months Ended
September 30,
     Change  
(amounts in thousands)    2020      2019      $      %  

Sales

   $ 542,062      $ 503,335      $ 38,727        7.7

Marketing

     242,283        478,347        (236,064      (49.3 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 784,345      $ 981,682      $ (197,337      (20.1 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues decreased by $197.3 million, or 20.1%, during the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.

In the sales segment, revenues increased $38.7 million, of which $9.6 million were revenues from acquired businesses during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019. Excluding revenues from acquired businesses, the segment experienced an increase of

 

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$29.2 million in organic revenues. The increase in revenues was primarily driven by the continued growth of our headquarter sales and retail merchandising services for clients in traditional channels along with growth in our digital commerce services, primarily due to a combination of new client wins and increased digital commerce needs due to the COVID-19 pandemic. These were partially offset by weakness in both our food service and our European businesses due to the temporary closures affecting those industries and locations and other adverse impacts of the COVID-19 pandemic has had on these services.

In the marketing segment, revenues declined $236.1 million, which includes a $4.5 million increase in revenues from acquired businesses, net of divestitures during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019. Excluding revenues from acquired businesses, the segment experienced a decline of $240.5 million in organic revenues. The decrease in revenues was primarily due to the temporary suspension of certain in-store sampling services earlier in the year as a result of the COVID-19 pandemic.

Cost of Revenues

Cost of revenues as a percentage of revenues for the three months ended September 30, 2020 was 79.7%, as compared to 82.4% for the three months ended September 30, 2019. The decrease as a percentage of revenues was largely attributable to the change in the revenue mix of our services, as well as an increase in commission-based revenues as a result of increased food purchases at retail stores, the temporary suspension of certain in-store demonstration services and a temporary reduction of travel related expenses as a result of the COVID-19 pandemic.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of revenues for the three months ended September 30, 2020 was 1.5%, as compared to 3.9% for the three months ended September 30, 2019. The decrease as a percentage of revenues for the three months ended September 30, 2020 was primarily attributable to a favorable settlement of lease liability obligations for certain exited leases, net of termination fees paid, the decrease in costs associated with the Take 5 Matter and the change in fair value adjustments related to contingent consideration.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $0.7 million, or 1.2%, to $58.6 million for the three months ended September 30, 2020, from $57.9 million for the three months ended September 30, 2019. The increase was primarily attributable to the depreciation and amortization of additional intangibles from recently acquired businesses.

Operating Income

 

     Three Months Ended
September 30,
     Change  
(amounts in thousands)    2020      2019      $     %  

Sales

   $ 60,205      $ 48,077      $ 12,128       25.2

Marketing

     28,366        28,448        (82     (0.3 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

Total operating income

   $ 88,571      $ 76,525      $ 12,046       15.7
  

 

 

    

 

 

    

 

 

   

 

 

 

In the sales segment, the increase in operating income during the three months ended September 30, 2020 was primarily attributable to the growth in revenues in the sales segment as described above.

 

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In the marketing segment, operating income remained flat during the three months September 30, 2020 compared to the three months ended September 30, 2019 as a result of the decrease in revenues described above being offset by the favorable settlement of lease liability obligations for exited leases, net of termination fees paid, the decrease in costs associated with the Take 5 Matter and the change in fair value adjustments related to contingent consideration.

Interest Expense, Net

Interest expense, net decreased $9.5 million, or 16.5%, to $48.2 million for the three months ended September 30, 2020, from $57.8 million for the three months ended September 30, 2019

The decrease in interest expense, net was primarily due to a decrease in interest rates applicable to certain indebtedness for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Provision for (Benefit from) Income Taxes

Provision for income taxes was $3.6 million for the three months ended September 30, 2020, as compared to a benefit from income taxes of $4.0 million for the three months ended September 30, 2019. The fluctuation was primarily attributable to a greater consolidated pre-tax income for the three months ended September 30, 2020 and variations in our forecasted annual effective tax rate.

Net Income (Loss)

The increase in net income for the three months ended September 30, 2020 was primarily attributable to the changes described in selling, general and administrative expenses above, decreased interest expense, offset by provision for income taxes.

Adjusted Net Income

The decrease in Adjusted Net Income for the three months ended September 30, 2020 was primarily attributable to the decrease in revenues noted above offset by a decrease in interest expense.

Adjusted EBITDA and Adjusted EBITDA by Segment

 

     Three Months Ended
September 30,
     Change  
(amounts in thousands)    2020      2019      $      %  

Sales

   $ 101,926      $ 86,046      $ 15,880        18.5

Marketing

     34,327        58,816        (24,489      (41.6 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Adjusted EBITDA

   $ 136,253      $ 144,862      $ (8,609      (5.9 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA decreased $8.6 million, or 5.9%, to $136.3 million for the three months ended September 30, 2020, from $144.9 million for the three months ended September 30, 2019.

The decrease in Adjusted EBITDA was primarily attributable to the decline in revenues in the marketing segment primarily due to the temporary suspension of certain in-store sampling services partially offset by the growth in revenues in the sales segment with favorable margin contributions from our headquarter sales services as described above.

 

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Comparison of the Nine Months Ended September 30, 2020 and 2019

Revenues

 

     Nine Months Ended
September 30,
     Change  
(amounts in thousands)    2020      2019      $      %  

Sales

   $ 1,510,099      $ 1,434,868      $ 75,231        5.2

Marketing

     795,185        1,337,319        (542,134      (40.5 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 2,305,284      $ 2,772,187      $ (466,903      (16.8 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues decreased by $466.9 million, or 16.8%, during the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019.

The sales segment revenues increased $75.2 million, of which $44.3 million were revenues from acquired businesses during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019. Excluding revenues from acquired businesses, the segment experienced an increase of $30.9 million in organic revenues. The increase in revenues was primarily driven by growth in our headquarter sales and retail merchandising services for clients in traditional channels along with growth in our digital commerce services, primarily due to a combination of new client wins and increased digital commerce needs due to the COVID-19 pandemic. These were partially offset by weakness in both our food service and our European businesses due to the temporary closures affecting those industries and locations and other adverse impacts of the COVID-19 pandemic has had on these services.

The marketing segment revenues declined $542.1 million during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, which includes a $6.2 million increase in revenues from acquired businesses, net of divestitures. Excluding revenues from acquired businesses, the segment experienced a decline of $548.3 million in organic revenues. The decrease in revenues were primarily due to the temporary suspension of certain in-store sampling services as a result of the COVID-19 pandemic.

Cost of Revenues

Cost of revenues as a percentage of revenues for the nine months ended September 30, 2020 was 81.6%, as compared to 83.8% for the nine months ended September 30, 2019. The decreases as a percentage of revenues were largely attributable to the change in the revenue mix of our services, as well as an increase in commission-based revenues as a result of increased food purchases at retail stores, the temporary suspension of certain in-store sampling services and reduced travel related expenses as a result of the COVID-19 pandemic.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of revenues for the nine months ended September 30, 2020 was 5.8%, as compared to 4.9% for the nine months ended September 30, 2019. The increase as a percentage of revenues for the nine months ended September 30, 2020 was primarily attributable to the increase in restructuring charges associated with terminating certain office leases offset by reduction of expense related to Take 5 Matter including the insurance recovery.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $3.1 million, or 1.8%, to $177.5 million for the nine months ended September 30, 2020, from $174.4 million for the nine months ended September 30, 2019. The increase was primarily attributable to the depreciation and amortization of additional intangibles from recently acquired businesses.

 

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Operating Income

 

     Nine Months Ended
September 30,
     Change  
(amounts in thousands)    2020      2019      $      %  

Sales

   $ 95,420      $ 87,673      $ 7,747        8.8

Marketing

     24,592        51,963        (27,371      (52.7 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating income

   $ 120,012      $ 139,636      $ (19,624      (14.1 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

In the sales segment, the increases in operating income during the nine months ended September 30, 2020 was primarily attributable to the growth in revenues in the sales segment as described above offset by one-time restructuring charges associated with terminating certain office leases and the change in fair value adjustments related to contingent consideration, which excludes present value accretion recorded as interest expense, net.

In the marketing segment, the decrease in operating income during the nine months ended September 30, 2020 was primarily attributable to the decrease in revenues as described above coupled with one-time restructuring charges associated with terminating certain office leases offset by reduction of expenses related to Take 5 Matter including the insurance recovery and a benefit from the change in fair value adjustments related to contingent consideration due to a decrease to the liabilities of $5.7 million during the nine months ended September 30, 2020 compared to an increase in the liabilities of $5.0 million during the nine months ended September 30, 2019.

Interest Expense, Net

Interest expense, net decreased $26.9 million, or 15.1%, to $151.6 million for the nine months ended September 30, 2020, from $178.5 million for the nine months ended September 30, 2019.

The decrease in interest expense, net was primarily due to a decrease in interest rates applicable to certain indebtedness for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

Benefit from Income Taxes

Benefit from income taxes was $8.7 million for the nine months ended September 30, 2020 as compared to a benefit from income taxes of $4.3 million for the nine months ended September 30, 2019. The fluctuation was primarily attributable to a decline in foreign taxes for the nine months ended September 30, 2020.

Net Income (Loss)

The decrease in net loss for the nine months ended September 30, 2020 was attributable to the decrease in interest expense and the increase in the benefit from income taxes partially offset by the reduction in operating income as described above.

Adjusted Net Income

The increase in Adjusted Net Income for the nine months ended September 30, 2020 was attributable to the decrease in interest expense and the increase in the benefit from income taxes partially offset by the reduction in revenues in the marketing segment as described above.

 

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Adjusted EBITDA and Adjusted EBITDA by Segment

 

     Nine Months Ended
September 30,
     Change  
(amounts in thousands)    2020      2019      $      %  

Sales

   $ 270,509      $ 222,107      $ 48,402        21.8

Marketing

     84,139        137,626        (53,487      (38.9 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Adjusted EBITDA

   $ 354,648      $ 359,733      $ (5,085      (1.4 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA decreased $5.1 million, or 1.4%, to $354.6 million for the nine months ended September 30, 2020, from $359.7 million for the nine months ended September 30, 2019.

The decrease in Adjusted EBITDA was primarily attributable to the decline in revenues in the marketing segment, primarily due to the temporary suspension of certain in-store sampling services, offset by the growth in revenues in the sales segment with favorable margin contributions from our headquarter sales services as described above.

Results of Operations for the Years Ended December 31, 2019 and 2018

 

     Year Ended December 31  
(amounts in thousands)    2019     2018  

Revenues

   $ 3,785,063        100.0   $ 3,707,628        100.0

Cost of revenues

     3,163,443        83.6     3,108,651        83.8

Selling, general, and administrative expenses

     175,373        4.6     152,493        4.1

Impairment of goodwill and indefinite-lived assets

     —            1,232,000     

Loss on Take 5

     —            79,165     

Depreciation and amortization

     232,573        6.1     225,233        6.1

Total expenses

     3,571,389        94.4     4,797,542        129.4

Operating income (loss)

     213,674        5.6     (1,089,914      (29.4 )% 

Interest expense, net

     232,077        6.1     229,643        6.2

Loss before income taxes

     (18,403      (0.5 )%      (1,319,557      (35.6 )% 

Provision for (benefit from) income taxes

     1,353        0.0     (168,334      (4.5 )% 
  

 

 

    

 

 

   

 

 

    

 

 

 

Net loss

   $ (19,756      (0.5 )%    $ (1,151,223      (31.1 )% 
  

 

 

    

 

 

   

 

 

    

 

 

 

Other Financial Data

          

Adjusted Net Income(1)

   $ 169,101        4.5     136,151        3.7

Adjusted EBITDA(1)

   $ 504,031        13.3   $ 471,374        12.7

 

(1)

Adjusted EBITDA and Adjusted Net Income are financial measures that are not calculated in accordance with GAAP. For a discussion of our presentation of Adjusted EBITDA and Adjusted Net Income and reconciliations of net (loss) income to Adjusted EBITDA and Adjusted Net Income, see “— Non-GAAP Financial Measures.”

Comparison of the Years Ended December 31, 2019 and 2018

Revenues

 

     Year Ended December 31,      Change  
(amounts in thousands)    2019      2018      $      %  

Sales

   $ 1,954,705      $ 1,857,004      $ 97,701        5.3

Marketing

     1,830,358        1,850,624        (20,266      (1.1 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 3,785,063      $ 3,707,628      $ 77,435        2.1
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Total revenues increased by $77.4 million, or 2.1%, during the year ended December 31, 2019, as compared to the year ended December 31, 2018.

In the sales segment, revenues increased $97.7 million, of which $23.2 million were revenues from acquired businesses. Excluding the revenues from acquired businesses, the segment experienced an increase of $74.5 million in organic revenues primarily due to a new merchandising program that started in the third quarter of 2018 as well as expansion in our e-commerce and international businesses along with new client wins.

In the marketing segment, revenues declined $20.3 million, of which $25.8 million was a decline in revenues from acquisitions, net of divestitures, as revenues lost from divestitures in the period exceeded revenues from acquired businesses in the period. Excluding the revenues from acquisitions, net of divestitures, the segment experienced an increase of $5.6 million in organic revenues primarily due to growth in experiential marketing programs and shopper and digital marketing services partially offset by the effect of the termination of an experiential marketing program in the third quarter of 2018.

Cost of Revenues

Cost of revenues as a percentage of revenues for the twelve months ended December 31, 2019 was 83.6%, as compared to 83.8% for the twelve months ended December 31, 2018 which is consistent year over year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of revenues for the twelve months ended December 31, 2019 was 4.6%, as compared to 4.1% for the twelve months ended December 31, 2018. The increase in selling, general, and administrative expenses was primarily attributable to the change in fair value adjustments related to contingent consideration of $1.5 million, which excludes present value of accretion recorded as interest expense, net recognized as a loss during the year ended December 31, 2019 compared to $54.5 million of a gain during the year ended December 31, 2018. The increase was partially offset by the reduction of one-time expenses associated with acquisition, integration, and restructuring charges primarily attributable to the integration of Daymon following the Daymon Acquisition.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $7.4 million, or 3.3%, to $232.6 million for the twelve months ended December 31, 2019, from $225.2 million for the twelve months ended December 31, 2018. The increase was primarily attributable to amortization of additional intangibles from newly acquired businesses.

Operating Income (Loss)

 

     Year Ended December 31,      Change  
(amounts in thousands)    2019      2018      $      %  

Sales

   $ 127,961      $ (1,072,702    $ 1,200,663        (111.9 )% 

Marketing

     85,713        (17,212      102,925        (598.0 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating income (loss)

   $ 213,674      $ (1,089,914    $ 1,303,588        (119.6 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

The increase in operating income in the sales segment was primarily attributable to the non-cash goodwill and non- cash intangible asset impairment charges during the year ended December 31, 2018. The increase in the marketing segment was primarily attributable to the loss on Take 5 during the year ended December 31, 2018.

 

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Interest Expense, net

Interest expense, net was $232.1 million for the twelve months ended December 31, 2019 versus $229.6 million for the twelve months ended December 31, 2018. The increase in interest expense, net was primarily due to an increase in the outstanding balance of indebtedness and an increase in interest rates applicable to certain indebtedness for the year ended December 31, 2019 as compared to the year ended December 31, 2018.

Provision for (Benefit from) Income Taxes

Provision for income taxes was $1.4 million for the twelve months ended December 31, 2019 as compared to the benefit from income taxes of $168.3 million for the twelve months ended December 31, 2018. The variance was primarily attributable to the pre-tax loss for the year ended December 31, 2018 that resulted from the $652.0 million non-cash goodwill impairment charge and the $580.0 million non-cash intangible asset impairment charge on our indefinite-lived sales trade name.

Net (Loss) Income

The decrease in net loss for the year ended December 31, 2019 was primarily attributable to the $1.2 billion decrease of impairment charges in the sales segment for the year ended December 31, 2018.

Adjusted Net Income

The increase in Adjusted Net Income for the year ended December 31, 2019 was attributable to the increases described in Adjusted EBTIDA below.

Adjusted EBITDA and Adjusted EBITDA by Segment

 

     Year Ended December 31,      Change  
(amounts in thousands)    2019      2018      $      %  

Sales

   $ 309,531      $ 295,195      $ 14,336        4.9

Marketing

     194,500        176,179        18,321        10.4
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Adjusted EBITDA

   $ 504,031      $ 471,374      $ 32,657        6.9
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA increased $32.7 million, or 6.9%, to $504.0 million for the twelve months ended December 31, 2019, from $471.4 million for the twelve months ended December 31, 2018. The increase in Adjusted EBITDA in the sales segment was primarily attributable to the growth in revenues and favorable margin contributions from acquisitions as described above. The increase in Adjusted EBITDA in the marketing segment was primarily due to growth in experiential marketing programs and shopper and digital marketing services as described above, along with cost savings from the integration of Daymon achieved as a result of the Daymon Acquisition.

Comparison of the Years Ended December 31, 2018 and 2017

Revenues

 

     Year Ended December 31,      Change  
(amounts in thousands)    2018      2017      $      %  

Sales

   $ 1,857,004      $ 1,588,444      $ 268,560        16.9

Marketing

     1,850,624        828,483        1,022,141        123.4
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 3,707,628      $ 2,416,927      $ 1,290,701        53.4
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues increased $1,290.7 million, or 53.4%, during the year ended December 31, 2018, as compared to the year ended December 31, 2017.

 

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In the sales segment, the growth in revenues of $268.6 million was primarily related to revenue growth from acquired businesses of $341.5 million, which was primarily attributable to Daymon. This increase was partially offset by a decline in organic revenues of $72.9 million, which was primarily attributable to a reduction of several of our in-store reset and merchandising programs and several clients that terminated services, the largest of which transitioned to an insourced model.

In the marketing segment, the growth in revenues of $1,022.1 million is primarily related to revenues growth from acquired businesses of $1,045.5 million, which is primarily attributable to Daymon. Excluding the revenues growth from acquired businesses, the decrease of $23.4 million in organic revenues was primarily attributable to termination of an experiential marketing program in the third quarter of 2018 and to a lesser extent, a reduction in volume at several in-store sampling platforms, partially offset by growth in our digital marketing services.

Cost of Revenues

Cost of revenues as a percentage of revenues for the year ended December 31, 2018 was 83.8%, as compared to 78.3% for the year ended December 31, 2017. The increase related primarily to higher costs of revenues attributed to Daymon’s business. Daymon has historically had higher cost of revenues as a percentage of revenues than we did prior to the Daymon Acquisition, and we expect this cost level to be representative of our cost base going forward. Excluding the impact of the Daymon Acquisition, cost of revenues as a percentage of revenues would have increased slightly due to a change in revenue mix at several of our in-store reset and merchandising programs.

Selling, General and Administrative Expense

Selling, general and administrative expenses increased $17.1 million, or 12.6%, to $152.5 million for the year ended December 31, 2018, from $135.4 million for the year ended December 31, 2017. Selling, general and administrative expenses as a percentage of revenues for the year ended December 31, 2018 was 4.1%, as compared to 5.6% for the year ended December 31, 2017. The decrease was primarily attributable to fair value adjustments related to contingent consideration resulting in a gain of $54.5 million for the year ended December 31, 2018, offset by one-time expenses associated with acquisition, integration and restructuring charges primarily attributable to the Daymon Acquisition of $56.0 million net of approximately $15.0 million of recognized synergies in the integration of Daymon.

Impairment of Goodwill and Indefinite-lived Assets

We recognized a $652.0 million non-cash goodwill impairment charge and a $580.0 million non-cash intangible asset impairment charge on our indefinite-lived sales trade name during the year ended December 31, 2018. The impairment charges were due to revised future year earnings expectations in our sales reporting unit, primarily driven by a reduction in revenues in several of our in-store reset and merchandising programs.

Loss on Take 5

We have recognized a $79.2 million loss on Take 5 in our Consolidated Statements of Comprehensive (Loss) Income during the year ended December 31, 2018, representing the $76.2 million in cash we paid for the assets of Take 5, together with restated acquired liabilities of $3.0 million.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $45.2 million, or 25.1%, to $225.2 million for the year ended December 31, 2018, from $180.0 million for the year ended December 31, 2017. The increase was primarily attributable to the depreciation and amortization of additional property and equipment and intangible assets from the Daymon Acquisition and other acquired businesses during the year ended December 31, 2018.

 

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Operating (Loss) Income

 

     Year Ended December 31,      Change  
(amounts in thousands)    2018      2017      $      %  

Sales

   $ (1,072,702    $ 172,171      $ (1,244,873      (723.0 )% 

Marketing

     (17,212      36,631        (53,843      (147.0 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating (loss) income

   $ (1,089,914    $ 208,802      $ (1,298,716      (622.0 )% 
  

 

 

    

 

 

    

 

 

    

 

 

 

The decrease in operating income in the sales segment was primarily attributable to the non-cash goodwill and non-cash intangible asset impairment charges. The decrease in the marketing segment was primarily attributable to the loss on Take 5.

Interest Expense, net

Interest expense, net increased $50.1 million, or 27.9%, to $229.6 million for the year ended December 31, 2018 from $179.6 million for the year ended December 31, 2017. The increase was primarily due to an increase in the amount of borrowings outstanding under our First Lien Term Loans as of February 2018 and an increase in present value accretion related to contingent consideration.

Benefit from Income Taxes

Benefit from income taxes was $168.3 million for the year ended December 31, 2018 as compared to the benefit from income taxes of $358.8 million for the year ended December 31, 2017, with effective tax rates of 12.8% and (1,227.3%), respectively. The variance was primarily attributable to the remeasurement in 2017 of the U.S. net deferred tax liabilities from the 35% to 21% tax rate as a result of the Tax Reform Act and the pre-tax loss for the year ended December 31, 2018 that resulted from the impairment.

Net (Loss) Income

The decrease in Net (loss) income for the year ended December 31, 2018 was primarily attributable to the impact of the impairment charges in the sales segment.

Adjusted Net Income

The decrease in Adjusted Net Income is primarily attributable to the increased interest expense.

Adjusted EBITDA and Adjusted EBITDA by Segment

 

     Year Ended December 31,      Change  
(amounts in thousands)        2018              2017          $      %  

Sales

   $ 295,195      $ 342,067      $ (46,872      (13.7 )% 

Marketing

     176,179        97,593        78,586        80.5
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Adjusted EBITDA

   $ 471,374      $ 439,660      $ 31,714        7.2
  

 

 

    

 

 

    

 

 

    

 

 

 

The increase in Adjusted EBITDA were primarily attributable to the Daymon Acquisition. The decrease in Adjusted EBITDA in the sales segment was primarily attributable to the decline in organic revenues partially offset by acquired revenues growth. The increase in Adjusted EBITDA in the marketing segment was primarily attributable to acquired revenues growth offset by decline in organic revenues as described above.

 

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Quarterly Results of Operations

The following table sets forth our historical quarterly results of operations as well as certain operating data for each of our most recent eleven fiscal quarters. This unaudited quarterly information has been prepared on the same basis as our annual audited financial statements, and includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary to state fairly the financial information for the fiscal quarters presented. The quarterly data should be read in conjunction with our audited consolidated financial statements and the related notes appearing elsewhere in this document. The operating results for any quarter are not necessarily indicative of the results of any future quarter.

 

    Three Months Ended  
(in thousands)   September 30,
2020
    June 30,
2020
    March 31,
2020
    December 31,
2019
    September 30,
2019
    June 30,
2019
    March 31,
2019
    December 31,
2018
    September 30,
2018
    June 30,
2018
    March 31,
2018
 

Revenues

  $ 784,345     $ 641,543     $ 879,396     $ 1,012,876     $ 981,682     $ 921,671     $ 868,834     $ 954,358     $ 956,729     $ 900,176     $ 896,365  

Cost of revenues

    625,363       509,923       746,693       840,102       809,243       770,601       743,497       777,522       795,101       761,312       774,716  

Selling, general, and administrative expenses

    11,855       80,569       41,056       40,587       38,042       46,993       49,751       45,954       508       58,680       47,351  

Impairment of goodwill and indefinite-lived assets

    —         —         —         —         —         —         —         1,232,000       —         —         —    

(Recovery from) loss on Take 5

    —         (7,700     —         —         —         —         —         —         —         79,165       —    

Depreciation and amortization

    58,556       58,748       60,209       58,149       57,872       59,020       57,532       57,804       57,123       55,253       55,053  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    695,774       641,540       847,958       938,838       905,157       876,614       850,780       2,113,280       852,732       954,410       877,120  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    88,571       3       31,438       74,038       76,525       45,057       18,054       (1,158,922     103,997       (54,234     19,245  

Interest expense, net

    48,243       51,521       51,794       53,606       57,762       59,661       61,048       63,883       56,670       55,198       53,892  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    40,328       (51,518     (20,356     20,432       18,763       (14,604     (42,994     (1,222,805     47,327       (109,432     (34,647

Provision for (benefit from) income taxes

    3,623       (13,704     1,367       5,630       (3,968     (1,510     1,201       (143,726     (10,649     10,599       (24,558
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    36,705       (37,814     (21,723     14,802       22,731       (13,094     (44,195     (1,079,079     57,976       (120,031     (10,089

Less: net income (loss) attributable to noncontrolling interest

    756       (410     (15     767       142       1,513       (1,006     4,284       1,188       1,265       (628
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to stockholder of Advantage Solutions Inc.

  $ 35,949     $ (37,404   $ (21,708   $ 14,035     $ 22,589     $ (14,607   $ (43,189   $ (1,083,363   $ 56,788     $ (121,296   $ (9,461
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Financial Data

                     

Sales Segment Adjusted EBITDA

  $ 101,926     $ 90,020     $ 78,563     $ 87,424     $ 86,046     $ 73,462     $ 62,599     $ 87,250     $ 77,726     $ 68,376     $ 61,843  

Marketing Segment Adjusted EBITDA

    34,327       22,024       27,788       56,874       58,816       45,490       33,320       55,081       53,308       39,534       28,256  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Adjusted EBITDA(1)

  $ 136,253     $ 112,044     $ 106,351     $ 144,298     $ 144,862     $ 118,952     $ 95,919     $ 142,331     $ 131,034     $ 107,910     $ 90,099  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net Income (Loss)(2)

  $ 65,607     $ 38,802     $ 26,849     $ 60,614     $ 65,825     $ 34,289     $ 8,381     $ 43,784     $ 58,412     $ (4,724   $ 38,679  

 

(1)

Adjusted EBITDA and Adjusted EBITDA by segment are financial measures that are not calculated in accordance with GAAP. A reconciliation of net income (loss) to Adjusted EBITDA and operating income (loss) to Adjusted EBITDA by segment is provided in the table below.

 

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A reconciliation of net income (loss) to Adjusted EBITDA is provided in the following table:

 

Consolidated   Three Months Ended  
    September 30,
2020
    June 30,
2020
    March 31,
2020
    December 31,
2019
    September 30,
2019
    June 30,
2019
    March 31,
2019
    December 31,
2018
    September 30,
2018
    June 30,
2018
    March 31,
2018
 
(in thousands)                                                                  

Net income (loss)

  $ 36,705     $ (37,814   $ (21,723   $ 14,802     $ 22,731     $ (13,094   $ (44,195   $ (1,079,079   $ 57,976     $ (120,031   $ (10,089

Add:

                     

Interest expense, net

    48,243       51,521       51,794       53,606       57,762       59,661       61,048       63,883       56,670       55,198       53,892  

Provision for (benefit from) income taxes

    3,623       (13,704     1,367       5,630       (3,968     (1,510     1,201       (143,726     (10,649     10,599       (24,558

Depreciation and amortization

    58,556       58,748       60,209       58,149       57,872       59,020       57,532       57,804       57,123       55,253       55,053  

Impairment of goodwill and indefinite-lived assets

    —         —         —         —         —         —         —         1,232,000       —         —         —    

Sponsors’ management fee and equity-based compensation expense(a)

    1,468       4,184       3,837       2,894       1,968       1,429       1,669       1,884       (9,586     2,451       2,819  

Fair value adjustments related to contingent consideration related to acquisitions(b)

    (6,184     4,128       4,095       (3,156     (1,100     3,402       2,370       (10,381     (42,643     (20     (1,420

Acquisition-related expenses(c)

    3,683       4,861       5,529       8,714       5,308       7,608       9,846       11,315       17,510       18,570       13,760  

Costs associated with COVID-19, net of benefits received(g)

    (1,389     (1,019     1,000       —         —         —         —         —         —         —         —    

EBITDA for economic interests in investments(d)

    (2,005     (887     (1,898     (3,329     (2,315     (2,150     (627     (2,100     (2,288     (1,925     (899

Restructuring expenses(e)

    (7,635     46,565       1,098       2,112       260       1,006       2,007       4,938       2,092       3,894       1,541  

Litigation expenses(f)

    (31     2,500       104       3,500       —         —         —         1,200       —         —         —    

(Recovery from) loss on Take 5

    —         (7,700     —         —         —         —         —         —         —         79,165       —    

Costs associated with the Take 5 Matter(h)

    1,219       661       939       1,376       6,344       3,580       5,068       4,593       4,829       4,756       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 136,253     $ 112,044     $ 106,351     $ 144,298     $ 144,862     $ 118,952     $ 95,919     $ 142,331     $ 131,034     $ 107,910     $ 90,099  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Financial information by segment, including a reconciliation of operating income (loss), the closest GAAP financial measure, to Adjusted EBITDA by segment is provided in the following tables:

 

Sales Segment   Three Months Ended  
    September 30,
2020
    June 30,
2020
    March 31,
2020
    December 31,
2019
    September 30,
2019
    June 30,
2019
    March 31,
2019
    December 31,
2018
    September 30,
2018
    June 30,
2018
    March 31,
2018
 
(in thousands)                                                                  

Operating income (loss)

  $ 60,205     $ 11,021     $ 24,194     $ 40,288     $ 48,077     $ 26,513     $ 13,083     $ (1,184,927   $ 79,034     $ 18,024     $ 15,167  

Add:

                     

Depreciation and amortization

    41,978       42,234       43,107       40,803       40,273       40,047       40,440       39,646       39,340       39,520       38,592  

Impairment of goodwill and indefinite-lived assets

    —         —         —         —         —         —         —         1,232,000       —         —         —    

Sponsors’ management fee and equity-based compensation expense(a)

    1,398       3,538       3,199       2,062       1,603       1,365       1,388       3,280       (5,646     1,596       1,790  

Fair value adjustments related to contingent consideration related to acquisitions(b)

    (669     4,128       4,312       (2,401     (4,880     3,049       1,512       (11,357     (42,504     (20     (747

Acquisition-related expenses(c)

    3,581       4,081       4,156       5,216       3,117       4,221       5,722       6,989       8,614       9,206       6,890  

Costs associated with COVID-19, net of benefits received(g)

    (1,198     530       810       —         —         —         —         —         —         —         —    

EBITDA for economic interests in investments(d)

    (2,142     (1,338     (2,071     (3,243     (2,323     (2,116     (713     (2,200     (2,234     (1,875     (846

Restructuring expenses(e)

    (1,227     23,326       752       1,199       179       383       1,167       2,619       1,122       1,925       997  

Litigation expenses(f)

    —         2,500       104       3,500       —         —         —         1,200       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Sales Segment Adjusted EBITDA

  $ 101,926     $ 90,020     $ 78,563     $ 87,424     $ 86,046     $ 73,462     $ 62,599     $ 87,250     $ 77,726     $ 68,376     $ 61,843  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Marketing Segment   Three Months Ended  
    September 30,
2020
    June 30,
2020
    March 31,
2020
    December 31,
2019
    September 30,
2019
    June 30,
2019
    March 31,
2019
    December 31,
2018
    September 30,
2018
    June 30,
2018
    March 31,
2018
 
(in thousands)                                                                  

Operating income (loss)

  $ 28,366     $ (11,018   $ 7,244     $ 33,750     $ 28,448     $ 18,544     $ 4,971     $ 26,005     $ 24,963     $ (72,258   $ 4,078  

Add:

                     

Depreciation and amortization

    16,578       16,514       17,102       17,346       17,599       18,973       17,092       18,158       17,783       15,733       16,461  

Sponsors’ management fee and equity-based compensation expense(a)

    70       646       638       832       365       64       281       (1,396     (3,940     855       1,029  

Fair value adjustments related to contingent consideration related to acquisitions(b)

    (5,515     —         (217     (755     3,780       353       858       976       (139     —         (673

Acquisition-related expenses(c)

    102       780       1,373       3,498       2,191       3,387       4,124       4,326       8,896       9,364       6,870  

Costs associated with COVID-19, net of benefits received(g)

    (191     (1,549     190       —         —         —         —         —         —         —         —    

EBITDA for economic interests in investments(d)

    137       451       173       (86     8       (34     86       100       (54     (50     (53

Restructuring expenses(e)

    (6,408     23,239       346       913       81       623       840       2,319       970       1,969       544  

Litigation expenses(f)

    (31     —         —         —         —         —         —         —         —         —         —    

(Recovery from) loss on Take 5

    —         (7,700     —         —         —         —         —         —         —         79,165       —    

Costs associated with the Take 5 Matter(h)

    1,219       661       939       1,376       6,344       3,580       5,068       4,593       4,829       4,756       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Marketing Segment Adjusted EBITDA

  $ 34,327     $ 22,024     $ 27,788     $ 56,874     $ 58,816     $ 45,490     $ 33,320     $ 55,081     $ 53,308     $ 39,534     $ 28,256  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (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. Also represents expenses related to (i) equity-based compensation associated with grants of Common Series D Units of Topco made to one of Advantage Sponsors, (ii) compensation amounts

 

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  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 the 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.

  (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 and the increase in the three months ended September 30, 2020 relates primarily to costs related to the abandonment of certain office leases. 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 legal settlements that are unusual or infrequent costs associated with our operating activities.

  (g)

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.

  (h)

Represents $1.2 million, $0.7 million, $0.9 million, $1.4 million, $6.3 million of costs associated with investigation and remediation activities related to the Take 5 Matter, primarily, professional fees and other related costs, respectively for the three months ended September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019, and September 30, 2019, respectively. Represents $3.6 million, $5.1 million, $4.6 million, $4.8 million, and $4.8 million of operating expenses associated with the Take 5 business, which we believe do not reflect the ongoing operating performance of our business for the three months ended June 30, 2019, March 31, 2019, December 31, 2018, September 30, 2018, and June 30, 2018, respectively.

 

(2)

Adjusted Net Income (Loss) is a financial measure that is not calculated in accordance with GAAP. A reconciliation of net income (loss) to Adjusted Net Income is provided in the following table:

 

    Three Months Ended  
    September 30,
2020
    June 30,
2020
    March 31,
2020
    December 31,
2019
    September 30,
2019
    June 30,
2019
    March 31,
2019
    December 31,
2018
    September 30,
2018
    June 30,
2018
    March 31,
2018
 
(in thousands)                                                                  

Net income (loss)

  $ 36,705     $ (37,814   $ (21,723   $ 14,802     $ 22,731     $ (13,094   $ (44,195   $ (1,079,079   $ 57,976     $ (120,031   $ (10,089

Less: Net (loss) income attributable to noncontrolling interest

    756       (410     (15     767       142       1,513       (1,006     4,284       1,188       1,265       (628

Add:

                     

Impairment of goodwill and indefinite-lived assets

    —         —         —         —         —         —         —         1,232,000       —         —         —    

Sponsors’ management fee and equity-based compensation expense(a)

    1,468       4,184       3,837       2,894       1,968       1,429       1,669       1,884       (9,586     2,451       2,819  

Fair value adjustments related to contingent consideration related to acquisitions(b)

    (6,184     4,128       4,095       (3,156     (1,100     3,402       2,370       (10,381     (42,643     (20     (1,420

Acquisition-related expenses(c)

    3,683       4,861       5,529       8,714       5,308       7,608       9,846       11,315       17,510       18,570       13,760  

Restructuring expenses(d)

    (7,635     46,565       1,098       2,112       260       1,006       2,007       4,938       2,092       3,894       1,541  

Litigation expenses(e)

    (31     2,500       104       3,500       —         —         —         1,200       —         —         —    

Costs associated with COVID-19, net of benefits received(f)

    (1,389     (1,019     1,000       —         —         —         —         —         —         —         —    

Amortization of intangible assets(g)

    47,781       47,652       47,846       47,030       47,633       47,746       47,472       47,984       47,677       46,775       46,395  

(Recovery from) loss on Take 5

    —         (7,700     —         —         —         —         —         —         —         79,165       —    

Costs associated with the Take 5 Matter(h)

    1,219       661       939       1,376       6,344       3,580       5,068       4,593       4,829       4,756       —    

Tax adjustments related to non-GAAP adjustments(i)

    (9,254     (25,626     (15,891     (15,891     (17,177     (15,875     (16,862     (166,386     (18,255     (39,019     (14,955
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net Income (Loss)

  $ 65,607     $ 38,802     $ 26,849     $ 60,614     $ 65,825     $ 34,289     $ 8,381     $ 43,784     $ 58,412     $ (4,724   $ 38,679  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
(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. Also represents expenses related to (i) equity-based compensation associated with grants of Common Series D Units of Topco made to one of the Advantage Sponsors, (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 the 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 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 and the increase in the nine months ended September 30, 2020 relates primarily to costs related to the abandonment of certain office leases. 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.

(e)

Represents legal settlements that are unusual or infre