Advantage Solutions Inc. (NASDAQ: ADV) (“Advantage,” the “Company,”
“we” or “our”), the leading provider of outsourced sales and
marketing services to consumer goods manufacturers and retailers,
today reported financial results for its fiscal first quarter ended
March 31, 2021.
“We are proud to report better than expected results for our
third straight quarter,” said Tanya Domier, Chief Executive Officer
of Advantage. “We are helping consumer goods companies and
retailers navigate out of COVID, and our service to them has
reinforced their trust in our essential sales and marketing
services. While portions of our business continue to experience
temporary headwinds from the pandemic, we are pleased with
improving momentum in the quarter,” Domier commented. “Sustained
strength in our sales segment and ramping recovery in our marketing
segment during the first quarter leave us very confident in
delivering on FY 2021 guidance of $515 to $525 million of Adjusted
EBITDA.”
“Importantly, I’d like to thank our associates. I couldn’t be
more proud of the team’s passion and performance during these
challenging times. Our associates have worked tirelessly to serve
clients, customers and communities with critical solutions that
help brands and retailers meet today’s evolving needs,” Domier
added.
First Quarter 2021 Highlights
- Revenues were $791.0 million for the first quarter of 2021,
representing a decline of $88.4 million, or 10.0%, from the first
quarter of 2020 revenues of $879.4 million.
- Operating income was $37.6 million for the first quarter of
2021, representing growth of $6.2 million, or 19.6%, from the first
quarter of 2020 operating income of $31.4 million.
- Net loss was $0.5 million for the first quarter of 2021,
representing an improvement of $21.2 million, or 97.5%, from the
first quarter of 2020 net loss $21.7 million.
- Adjusted EBITDA was $111.4 million for the first quarter of
2021, representing growth of $5.1 million, or 4.8%, from the first
quarter of 2020 Adjusted EBITDA of $106.4 million.
First quarter 2021 revenues declined $88.4 million, or 10.0%, to
$791.0 million compared to $879.4 million for the first quarter of
2020. The year-over-year decline in revenues was driven by a $114.9
million decline in the marketing segment, partially offset by $26.5
million of growth in the sales segment. The first quarter’s decline
in the marketing segment was the result of a COVID-driven dip
year-on-year in the Company’s in-store sampling business, partially
offset by strength in digital agency businesses. The first
quarter’s growth in the sales segment was driven by still-elevated
at-home consumption, new business wins and e-commerce growth.
First quarter 2021 operating income grew $6.2 million, or 19.6%,
to $37.6 million compared to $31.4 million for the first quarter of
2020. The year-over-year growth in operating income came from
mix-driven improvement in gross margins and prudent management of
SG&A expenses.
First quarter 2021 net loss declined $21.2 million, to $0.5
million compared to a net loss of $21.7 million for the first
quarter of 2020. The year-over-year growth in net income was
primarily driven by higher operating income, a fair value
adjustment to warrant liability, and lower interest expense,
partially offset by a higher provision for income taxes.
First quarter 2021 Adjusted EBITDA grew $5.1 million, or 4.8%,
to $111.4 million compared to $106.4 million for the first quarter
of 2020. The year-over-year growth in Adjusted EBITDA was primarily
driven by continued strength in the sales segment, continued
recovery of in-store sampling programs in the marketing segment,
disciplined expense management and sustained growth in e-commerce
and digital agency services.
Balance Sheet Highlights
As of March 31, 2021, the Company’s cash and cash equivalents
balance was $156.4 million, total debt was $2,099.7 million and Net
Debt was $1,943.3 million. The post-combination debt capitalization
consists primarily of a $400 million revolving credit facility,
under which no balance was outstanding at the end of the quarter
ended March 31, 2021, a $1,325 million first lien term loan
facility, and $775 million of senior secured notes.
COVID-19 Update
Advantage continues to monitor the impact of the COVID-19
pandemic on its business and remains focused on: ensuring its
ability to safeguard the health of its employees, maintaining high
service levels for brand and retailer clients so that essential
products are available to consumers in-store and online, and
preserving financial liquidity to mitigate the uncertainty caused
by the pandemic.
The COVID-19 pandemic continues to benefit the Company’s sales
segment.
The Company’s headquarter sales and retail merchandising
services in traditional and e-commerce channels have generally
continued to experience an uplift in the first quarter of 2021,
driven by increased at-home consumption. This offsets softness in
the Company’s foodservice and international joint venture
operations. The Company’s foodservice operations continue to be
negatively impacted by lower away-from-home demand resulting from
the impact of the COVID-19 pandemic on various channels, including
restaurants, education and travel and lodging. The Company’s
international joint venture continues to be negatively impacted by
activity restrictions implemented in the European geographies in
which it operates.
The COVID-19 pandemic continues to be a material temporary
headwind in the marketing segment.
The Company’s in-store sampling business, the largest division
in the marketing segment, continues to be negatively impacted by
activity restrictions implemented in partnership with retailer
clients in order to protect the health and safety of associates and
consumers during the pandemic. In-store sampling event activity
resumed in a safe and limited manner in the third quarter of 2020
and has continued its measured recovery towards pre-COVID levels
throughout the first quarter of 2021. Event counts have climbed
from a low of approximately 23,000 last April to 133,000 this
February and 176,000 this March.
The Company expects the COVID-19 pandemic will continue to
impact its various businesses through at least the first half of
2021. This is based on the belief that a certain degree of
restrictions on mobility and activities are likely to remain in
place until such time as vaccines can be broadly distributed and
administered.
Warrant Accounting
As previously disclosed, based upon April 12, 2021 SEC guidance
regarding the technical accounting for warrants issued by SPACs,
Advantage Solutions will be revising its 2020 financial
statements. The revisions are expected to result in non-cash,
non-operating financial statement adjustments and have no impact on
our current or previously reported revenue, cash position,
operating expenses or total operating, investing or financing cash
flows. Additionally, there is no anticipated impact on our non-GAAP
operating metrics, including Adjusted EBITDA, Adjusted Net Income
and Net Debt.
FY 2021 Outlook
Despite COVID-19 uncertainty, the Company is highly confident in
delivering 2021 Adjusted EBITDA in the range of $515 to $525
million. Forecasted Adjusted EBITDA assumes that strength in the
sales segment from elevated at-home demand for consumer goods
normalizes through 2021 and weakness in the marketing segment from
COVID-related headwinds eases into the second half.
Conference Call Details
Advantage will host a conference call at 5:00 p.m. ET on May 10
to discuss the first quarter financial performance and business
outlook. To participate, please dial (877) 407-4018 within the
United States or (201) 689-8471 outside the United States
approximately 10 minutes before the scheduled start of the call.
The conference ID for the call is 13719007. The conference call
will also be accessible, live via audio broadcast, on the Investor
Relations section of the Advantage website at
https://ir.advantagesolutions.net/
A replay of the conference call will be available online at
https://ir.advantagesolutions.net/. In addition, an audio replay of
the call will be available for one week following the call and can
be accessed by dialing (844) 512-2921 within the United States or
(412) 317-6671 outside the United States. The replay ID is
13719007.
About Advantage Solutions
Advantage Solutions is a leading business solutions provider
committed to driving growth for consumer goods manufacturers and
retailers through winning insights and execution. Advantage’s data
and technology-enabled omnichannel solutions — including sales,
retail merchandising, business intelligence, digital commerce and a
full suite of marketing services — help brands and retailers across
a broad range of channels drive consumer demand, increase sales and
achieve operating efficiencies. Headquartered in Irvine,
California, Advantage has offices throughout North America and
strategic investments in select markets throughout Africa, Asia,
Australia and Europe through which it services the global needs of
multinational, regional and local manufacturers. For more
information, please visit advantagesolutions.net.
Forward-Looking Statements
Certain statements in this press release may be considered
forward-looking statements within the meaning of the federal
securities laws, including statements regarding the expected future
performance of Advantage's business. Forward-looking statements
generally relate to future events or Advantage’s future financial
or operating performance. These forward-looking statements
generally are identified by the words “may”, “should”, “expect”,
“intend”, “will”, “would”, “estimate”, “anticipate”, “believe”,
“predict”, “potential” or “continue”, or the negatives of these
terms or variations of them or similar terminology. Such
forward-looking statements are predictions, projections and other
statements about future events that are based on current
expectations and assumptions and, as a result, are subject to
risks, uncertainties, and other factors which could cause actual
results to differ materially from those expressed or implied by
such forward looking statements.
Factors that may cause actual results to differ materially from
current expectations include, but are not limited to, the COVID-19
pandemic and the measures taken in response thereto; the
availability, acceptance, administration and effectiveness of any
COVID-19 vaccine; changes to labor laws or wage or job
classification regulations, including minimum wage, or other
market-driven wage changes; Advantage’s ability to continue to
generate significant operating cash flow; client procurement
strategies and consolidation of Advantage’s clients’ industries
creating pressure on the nature and pricing of its services;
consumer goods manufacturers and retailers reviewing and changing
their sales, retail, marketing, and technology programs and
relationships; Advantage’s ability to successfully develop and
maintain relevant omni-channel services for our clients in an
evolving industry and to otherwise adapt to significant
technological change; Advantage’s ability to effectively remediate
material weaknesses and maintain proper and effective internal
controls in the future; potential and actual harms to Advantage’s
business arising from the Take 5 Matter; Advantage’s substantial
indebtedness and our ability to refinance at favorable rates; and
other risks and uncertainties set forth in the section titled “Risk
Factors” in the Annual Report on Form 10-K filed by the Company
with the Securities and Exchange Commission (the “SEC”) on March
16, 2021 and in its other filings made from time to time with the
SEC. These filings identify and address other important risks and
uncertainties that could cause actual events and results to differ
materially from those contained in the forward-looking statements.
Forward-looking statements speak only as of the date they are made.
Readers are cautioned not to put undue reliance on forward-looking
statements, and Advantage assumes no obligation and does not intend
to update or revise these forward-looking statements, whether as a
result of new information, future events, or otherwise, except as
required by law.
Non-GAAP Financial Measures and Related
Information
This press release includes certain financial measures not
presented in accordance with generally accepted accounting
principles (“GAAP”), including EBITDA for economic interests in
investments, Adjusted EBITDA, Adjusted Net income and Net Debt.
These are not measures of financial performance in accordance with
GAAP and may exclude items that are significant in understanding
and assessing the Advantage’s financial results. Therefore, the
measures are in addition to, and not a substitute for or superior
to, measures of financial performance prepared in accordance with
GAAP, and should not be considered in isolation or as an
alternative to net income, cash flows from operations or other
measures of profitability, liquidity or performance under GAAP. You
should be aware that Advantage’s presentation of these measures may
not be comparable to similarly-titled measures used by other
companies. Reconciliations of historical non-GAAP measures to their
most directly comparable GAAP counterparts are included below.
Advantage believes these non-GAAP measures provide useful
information to management and investors regarding certain financial
and business trends relating to Advantage’s financial condition and
results of operations. Advantage believes that the use of Adjusted
EBITDA, Adjusted Net Income and Net Debt provides an additional
tool for investors to use in evaluating ongoing operating results
and trends in and in comparing the Advantage’s financial measures
with other similar companies, many of which present similar
non-GAAP financial measures to investors. Non-GAAP financial
measures are subject to inherent limitations as they reflect the
exercise of judgments by management about which expense and income
are excluded or included in determining these non-GAAP financial
measures. Additionally, other companies may calculate non-GAAP
measures differently, or may use other measures to calculate their
financial performance, and therefore Advantage’s non-GAAP measures
may not be directly comparable to similarly titled measures of
other companies.
Adjusted Net Income means net (loss) income before (i)
impairment of goodwill and indefinite-lived assets, (ii)
amortization of intangible assets, (iii) equity based compensation
of Karman Topco L.P. and Advantage’s private equity sponsors’
management fee, (iv) change in fair value of warrant liability, (v)
fair value adjustments of contingent consideration related to
acquisitions, (vi) acquisition-related expenses, (vii) costs
associated with COVID-19, net of benefits received, (viii) EBITDA
for economic interests in investments, (ix) restructuring expenses,
(x) litigation expenses, (xi) (Recovery from) loss on Take 5, (xii)
costs associated with the Take 5 Matter, (xiii) other adjustments
that management believes are helpful in evaluating our operating
performance, and (xiv) related tax adjustments.
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) equity based
compensation of Karman Topco L.P. and Advantage’s private equity
sponsors’ management fee, (vii) change in fair value of warrant
liability, (viii) stock-based compensation expense, (ix) fair value
adjustments of contingent consideration related to acquisitions,
(x) acquisition-related expenses, (xi) costs associated with
COVID-19, net of benefits received, (xii) EBITDA for economic
interests in investments, (xiii) restructuring expenses, (xiv)
litigation expenses, (xv) (Recovery from) loss on Take 5, (xvi)
costs associated with the Take 5 Matter and (xvii) other
adjustments that management believes are helpful in evaluating our
operating performance.
Net Debt represents the sum of current portion of long-term debt
and long-term debt, less cash and cash equivalents and debt
issuance costs. With respect to Net Debt, cash and cash equivalents
are subtracted from the GAAP measure, total debt, because they
could be used to reduce the debt obligations.
This press release also includes certain estimates and
projections of Adjusted EBITDA, including with respect to expected
2021 results. Due to the high variability and difficulty in making
accurate estimates and projections of some of the information
excluded from Adjusted EBITDA, together with some of the excluded
information not being ascertainable or accessible, Advantage is
unable to quantify certain amounts that would be required to be
included in the most directly comparable GAAP financial measures
without unreasonable effort. Consequently, no disclosure of
estimated or projected comparable GAAP measures is included and no
reconciliation of such forward-looking non-GAAP financial measures
is included.
Reconciliation of GAAP to Non-GAAP Historical Financial
Measures
Results of Operations for the Three Months Ended March
31, 2021 and 2020
|
Three Months Ended March 31, |
(amounts in
thousands) |
|
2021 |
|
|
|
2020 |
|
|
|
|
|
|
|
|
|
Revenues |
$ |
791,021 |
|
|
100.0 |
% |
|
$ |
879,396 |
|
|
100.0 |
% |
Cost of revenues |
|
653,339 |
|
|
82.6 |
% |
|
|
746,693 |
|
|
84.9 |
% |
Selling, general, and
administrative expenses |
|
40,481 |
|
|
5.1 |
% |
|
|
41,056 |
|
|
4.7 |
% |
Depreciation and
amortization |
|
59,613 |
|
|
7.5 |
% |
|
|
60,209 |
|
|
6.8 |
% |
Total expenses |
|
753,433 |
|
|
95.2 |
% |
|
|
847,958 |
|
|
96.4 |
% |
Operating income |
|
37,588 |
|
|
4.8 |
% |
|
|
31,438 |
|
|
3.6 |
% |
Other expenses: |
|
|
|
|
|
|
|
Change in fair value of warrant
liability |
|
5,526 |
|
|
0.7 |
% |
|
|
— |
|
|
0.0 |
% |
Interest expense, net |
|
30,865 |
|
|
3.9 |
% |
|
|
51,794 |
|
|
5.9 |
% |
Total other expenses |
|
36,391 |
|
|
4.6 |
% |
|
|
51,794 |
|
|
5.9 |
% |
Loss before income taxes |
|
1,197 |
|
|
0.2 |
% |
|
|
(20,356 |
) |
|
(2.3 |
)% |
Provision for income taxes |
|
1,743 |
|
|
0.2 |
% |
|
|
1,367 |
|
|
0.2 |
% |
Net loss |
$ |
(546 |
) |
|
(0.1 |
)% |
|
$ |
(21,723 |
) |
|
(2.5 |
)% |
Other Financial
Data |
|
|
|
|
|
|
|
Adjusted Net Income(1) |
$ |
46,264 |
|
|
5.8 |
% |
|
$ |
26,849 |
|
|
3.1 |
% |
Adjusted EBITDA(1) |
$ |
111,428 |
|
|
14.1 |
% |
|
$ |
106,351 |
|
|
12.1 |
% |
(1) We present Adjusted Net Income because we use
it as a supplemental measure to evaluate the performance of our
business in a way that also considers our ability to generate
profit without the impact of items that we do not believe are
indicative of our operating performance or are unusual or
infrequent in nature and aid in the comparability of our
performance from period to period. Adjusted Net Income should not
be considered as an alternative for our most directly comparable
measure presented on a GAAP basis.
We present Adjusted EBITDA because it is a key operating measure
used by us to assess our financial performance. This measure
adjusts for items that we believe do not reflect the ongoing
operating performance of our business, such as certain noncash
items, unusual or infrequent items or items that change from period
to period without any material relevance to our operating
performance. We evaluate this measure in conjunction with our
results according to GAAP because we believe it provides a more
complete understanding of factors and trends affecting our business
than GAAP measures alone. Furthermore, the agreements governing our
indebtedness contain covenants and other tests based on measures
substantially similar to Adjusted EBITDA. Adjusted EBITDA should
not be considered as an alternative for our most directly
comparable measure presented on a GAAP basis.
A reconciliation of net loss to Adjusted Net Income is provided
in the following table:
|
Three Months Ended March 31, |
|
|
2021 |
|
|
|
2020 |
|
(in
thousands) |
|
|
|
Net loss |
$ |
(546 |
) |
|
$ |
(21,723 |
) |
Less: Net loss attributable to
noncontrolling interest |
|
(430 |
) |
|
|
(15 |
) |
Add: |
|
|
|
Equity based compensation of
Karman Topco L.P. and Advantage’s private equity sponsors’
management fee (a) |
|
(2,814 |
) |
|
|
3,837 |
|
Change in fair value of
warrant liability |
|
5,526 |
|
|
|
— |
|
Fair value adjustments related
to contingent consideration related to acquisitions(c) |
|
(1,043 |
) |
|
|
4,095 |
|
Acquisition-related
expenses(d) |
|
5,146 |
|
|
|
5,529 |
|
Restructuring expenses(e) |
|
4,096 |
|
|
|
1,098 |
|
Litigation expenses(f) |
|
(818 |
) |
|
|
104 |
|
Amortization of intangible
assets(g) |
|
49,438 |
|
|
|
47,846 |
|
Costs associated with
COVID-19, net of benefits received(g) |
|
1,293 |
|
|
|
1,000 |
|
Costs associated with the Take
5 Matter(h) |
|
901 |
|
|
|
939 |
|
Tax adjustments related to
non-GAAP adjustments(i) |
|
(15,345 |
) |
|
|
(15,891 |
) |
Adjusted Net Income |
$ |
46,264 |
|
|
$ |
26,849 |
|
|
|
|
|
|
|
|
|
A reconciliation
of net loss to Adjusted EBITDA is provided in the following
table:
Consolidated |
Three Months Ended March 31, |
|
|
2021 |
|
|
|
2020 |
|
(in
thousands) |
|
|
|
Net loss |
$ |
(546 |
) |
|
$ |
(21,723 |
) |
Add: |
|
|
|
Interest expense, net |
|
30,865 |
|
|
|
51,794 |
|
Provision for income taxes |
|
1,743 |
|
|
|
1,367 |
|
Depreciation and
amortization |
|
59,613 |
|
|
|
60,209 |
|
Equity based compensation of
Karman Topco L.P. and Advantage’s private equity sponsors’
management fee (a) |
|
(2,814 |
) |
|
|
3,837 |
|
Change in fair value of
warrant liability |
|
5,526 |
|
|
|
— |
|
Stock based compensation
expense(b) |
|
8,655 |
|
|
|
— |
|
Fair value adjustments related
to contingent consideration related to acquisitions(c) |
|
(1,043 |
) |
|
|
4,095 |
|
Acquisition-related
expenses(d) |
|
5,146 |
|
|
|
5,529 |
|
EBITDA for economic interests
in investments(j) |
|
(1,189 |
) |
|
|
(1,898 |
) |
Restructuring expenses(e) |
|
4,096 |
|
|
|
1,098 |
|
Litigation expenses(f) |
|
(818 |
) |
|
|
104 |
|
Costs associated with
COVID-19, net of benefits received(g) |
|
1,293 |
|
|
|
1,000 |
|
Costs associated with the Take
5 Matter(h) |
|
901 |
|
|
|
939 |
|
Adjusted EBITDA |
$ |
111,428 |
|
|
$ |
106,351 |
|
|
|
|
|
|
|
|
|
(a) |
Represents the management fees and reimbursements for expenses paid
to certain of Advantage’s private equity sponsors (or certain of
the management companies associated with it or its advisors)
pursuant to a management services agreement in the three months
ended March 31, 2021 and 2020. Also represents expenses related to
(i) equity-based compensation expense associated with grants
of Common Series D Units of Topco made to one of the Advantage’s
private equity sponsors, (ii) equity-based compensation
expense associated with the Common Series C Units of Topco as a
result of the Transactions, (iii) compensation amounts
associated with the Company’s Management Incentive Plan originally
scheduled for potential payment March 2022, and
(iv) compensation amounts associated with the anniversary
payments to Tanya Domier. |
|
|
(b) |
Represents non-cash compensation expense related to issuance of
performance restricted stock units, restricted stock units, and
stock options with respect to our Class A common stock under the
Advantage Solutions Inc. 2020 Incentive Award Plan. |
|
|
(c) |
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. |
|
|
(d) |
Represents fees and costs associated with activities related to our
acquisitions and restructuring activities related to our equity
ownership, including transaction bonuses paid in connection with
the Transactions, professional fees, due diligence, public company
readiness and integration activities. |
|
|
(e) |
Represents fees and costs associated with various internal
reorganization activities among our consolidated entities. |
|
|
(f) |
Represents legal settlements that are unusual or infrequent costs
associated with our operating activities. |
|
|
(g) |
Represents (i) 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 (ii) benefits received from
government grants for COVID-19 relief. |
|
|
(h) |
Represents $0.9 million and $0.9 million of costs associated
with investigation and remediation activities related to the Take 5
Matter, primarily, professional fees and other related costs, for
the three months ended March 31, 2021 and 2020, respectively. |
|
|
(i) |
Represents the tax provision or benefit associated with the
adjustments above, taking into account the Company’s applicable tax
rates, after excluding adjustments related to items that do not
have a related tax impact. |
|
|
(j) |
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. |
A reconciliation of total debt to Net Debt is provided in the
following table:
(in
millions) |
March 31, 2021 |
Current portion of long-term debt |
$ |
13.3 |
|
Long-term debt, net of current
portion |
|
2,028.1 |
|
Total Debt |
|
2,041.4 |
|
Less: |
|
|
Debt issuance costs |
|
(58.3 |
) |
Cash and cash equivalents |
|
156.4 |
|
Total Net Debt (a) |
$ |
1,943.3 |
|
(a) We present Net Debt because we believe it provides useful
information to management and investors regarding certain financial
and business trends relating to the Company’s financial condition
and to evaluate changes to the Company's capital structure and
credit quality assessment.
Contacts: Dan RiffChief Investor
Relations & Strategy OfficerAdvantage
SolutionsDaniel.riff@advantagesolutions.net
Dan MorrisonSenior Vice President, Finance &
OperationsAdvantage Solutions
Kevin Doherty Solebury TroutManaging Director
Investorrelations@advantagesolutions.net
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