Executive Overview We are a leading business solutions provider to consumer goods manufacturers and retailers. We have a strong platform of competitively advantaged sales and marketing services built over multiple decades - essential, business critical services like headquarter sales, retail merchandising, in-store sampling, digital commerce and shopper marketing. For brands and retailers of all sizes, we help get the right products on the shelf (whether physical or digital) and into the hands of consumers (however they shop). We use a scaled platform to innovate as a trusted partner with our clients, solving problems to increase their efficiency and effectiveness across a broad range of channels. We have two reportable segments: sales and marketing. Through our sales segment, which generated approximately 66.8% and 63.6% of our total revenues in the six months endedJune 30, 2021 and 2020, respectively, we offer headquarter sales representation services to consumer goods manufacturers, for whom we prepare and present to retailers a business case to increase distribution of manufacturers' products and optimize how they are displayed, priced and promoted. We also make in-store merchandising visits for both manufacturer and retailer clients to ensure the products we represent are adequately stocked and properly displayed. Through our marketing segment, which generated approximately 33.2% and 36.4% of our total revenues in the six months endedJune 30, 2021 and 2020, respectively, we help brands and retailers reach consumers through two main categories within the marketing segment. The first and largest category is our retail experiential business, also known as in-store sampling or demonstrations, where we manage highly customized large-scale sampling programs (both in-store and online) for leading retailers. The second category is our collection of specialized agency services, in which we provide private label services to retailers and develop granular marketing programs for brands and retailers through our shopper, consumer and digital marketing agencies. Business Combination withConyers Park OnSeptember 7, 2020 ,Advantage Solutions Inc. , now known asASI Intermediate Corp. ("ASI"), entered into an agreement and plan of merger (as amended, modified, supplemented or waived, the "Merger Agreement"), withConyers Park II Acquisition Corp. , aDelaware corporation now known asAdvantage Solutions Inc. ("Conyers Park"),CP II Merger Sub, Inc. , aDelaware corporation and wholly owned subsidiary of Conyers Park ("Merger Sub"), andKarman Topco L.P. , then the parent company of ASI ("Topco"). InSeptember 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 participating equity holders of Topco (the "Advantage Sponsors"), agreed to purchase Class A Common Stock of Conyers Park ("Common Stock") at a purchase price of$10.00 per share (the "PIPE Investment "). OnOctober 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, onOctober 28, 2020 (the "Closing Date"), Merger Sub was merged with and into ASI with ASI 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, thePIPE 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 shares of Common Stock, the Advantage Sponsors acquired 34,410,000 shares of Common Stock, and other purchasers acquired 51,130,000 shares of Common Stock. 25 -------------------------------------------------------------------------------- Table of Contents Holders of 32,114,818 shares of Common Stock sold inConyers Park's 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 therefrom, calculated as of two business days prior to the Closing Date, equal to$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 ASI prior to the Merger, aggregate consideration equal to (a) 203,750,000 shares of Common Stock, and (b) 5,000,000 shares of Common Stock that vested upon achievement of a market performance condition onJanuary 15, 2021 (the "Performance Shares"). After giving effect to the Transactions, the Redemptions, and the consummation of thePIPE Investment , there were 313,425,182 shares of Common Stock issued and outstanding as of the Closing Date, excluding the Performance Shares. The Common Stock and outstanding warrants of Conyers Park (renamed "Advantage Solutions Inc. " following the Transactions) commenced trading on the Nasdaq Global Select Market under the symbols "ADV" and "ADVWW", respectively, onOctober 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 Redemptions, 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 (as defined below). In connection with the Merger, ASI repaid and terminated$3.3 billion of debt arrangements under its First Lien Credit Agreement, SecondLien Credit Agreement, and accounts receivable securitization facility (the "AR Facility") that existed in 2020 (collectively, the "Prior Credit Facilities") with incremental costs of$86.8 million . This amount was repaid by ASI through a combination of (i) cash on hand, (ii) proceeds from certain private investments in Common Stock, (iii) the entry byAdvantage Sales & Marketing Inc. , a wholly owned subsidiary of ASI, 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 ofOctober 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 byAdvantage Solutions FinCo LLC , a direct subsidiary ofAdvantage Sales & Marketing Inc. ("Finco"), of$775.0 million aggregate principal amount of 6.50% Senior Secured Notes due 2028 (the "Notes"). The Merger was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Conyers Park was treated as the "acquired" company for financial reporting purposes. This determination was primarily based on Topco having a relative majority of the voting power of the combined entity, the operations of ASI prior to the Merger comprising the only ongoing operations of the combined entity, and senior management of ASI 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 ASI with the acquisition being treated as the equivalent of ASI issuing stock for the net assets of Conyers Park, accompanied by a recapitalization. The net assets of Conyers Park was 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 or amending certain office leases, furloughing, instituting pay reductions and deferrals and terminating some of our employees, particularly with respect to COVID-19 impacted operations. 26
-------------------------------------------------------------------------------- Table of Contents 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 international businesses. Most notably, we temporarily suspended all in-store sampling in allU.S. locations starting in March and April of 2020 as well as in certain international locations. While the restrictions relating to in-store sampling services materially and adversely affected our results of operations during the year endedDecember 31, 2020 and the six months endedJune 30, 2021 , we have started to re-open in-store sampling activities in certain retailers in certain geographies on a prudent, phased basis, and 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. While not back to pre-pandemic levels, more recently, we have seen growth in our foodservice business, which was impacted by lower away-from-home demand on various channels, including restaurants, education and travel and lodging. Additionally, our international business has started to show growth after restrictions were lifted on activity in the various international geographies in which we operate. During the year endedDecember 31, 2020 and the six months endedJune 30, 2021 , we 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 six months endedJune 30, 2021 , which show that compared to the six months endedJune 30, 2020 : • our sales segment revenues, operating income, and Adjusted EBITDA increased 13.2%, 126.7%, and 3.0%, respectively, and;
• our market segment revenues and operating income decreased 1.4% and
105.6%, respectively, and Adjusted EBITDA increased 20.0%. We expect the ultimate significance of the impact of the pandemic on our financial condition, results of operations and cash flows will be dictated by the length of time that such circumstances continue and any future restrictions imposed on our business and operations, which will depend on the currently unknowable extent and duration of the COVID-19 pandemic and the nature and effectiveness of governmental, commercial and personal actions taken in response. We believe the impact of the pandemic will decrease in the second half of 2021 as businesses and individuals choose to have more in-person activities. Summary Our financial performance for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 includes: • revenues increasing by$208.4 million , or 32.5%, to$849.9 million ; • operating income increasing from zero to$42.4 million ; • net income increasing by$43.6 million , or 115.2%, to$5.8 million ; • Adjusted Net Income increasing by$2.6 million , or 6.7%, to$41.4 million ; and
• Adjusted EBITDA increasing by
Our financial performance for the six months ended
• revenues increasing by
• operating income increasing by
• net income increasing by$63.2 million , or 106.2%, to$5.2 million ; 27
--------------------------------------------------------------------------------
Table of Contents • Adjusted Net Income increasing by$22.0 million , or 33.5%, to$87.7 million ; and
• Adjusted EBITDA increasing by
During the six months endedJune 30, 2021 , we acquired three sales businesses. The aggregate purchase price for these three acquisitions was$27.0 million , of which$20.4 million was paid in cash,$5.1 million in contingent consideration and$1.4 million in holdback. 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. InDecember 2017 , we completed the acquisition ofDaymon Worldwide Inc. , a leading provider of private label development and management, merchandising and experiential marketing services. In addition to the
toJune 30, 2021 , ranging in purchase prices 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 thresholds 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 the sellers of such businesses 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 our 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
our Condensed Consolidated Statements of Operations and Comprehensive
Income (Loss). • Depreciation and Amortization. As a result of the acquisition of our business by Topco onJuly 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
will increase, our intangible assets. We do not believe the amortization
expense associated with the intangibles created from our purchase 28
--------------------------------------------------------------------------------
Table of Contents
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
British pounds and euros, 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
fiscal
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 fiscal 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 fiscal 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 merchandising services, category and space management, headquarter relationship management, technology solutions and administrative services. A small portion of our arrangements include performance incentive provisions, which allow us to earn additional revenues on our performance relative to specified quantitative or qualitative goals. We recognize the incentive portion of revenues under these arrangements when the related services are transferred to the customer. Marketing segment revenues are primarily recognized in the form of a fee-for-service (including retainer fees, fees charged to clients based on hours incurred, project-based fees or fees for executing in-person consumer engagements or experiences, which engagements or experiences we refer to as events), commissions or on a cost-plus basis, in each case, related to services including experiential marketing, shopper and consumer marketing services, private label development or our digital, social and media services. Given our 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 onJuly 1, 2019 for a business that included a contingent consideration arrangement, we would consider revenues from the acquired business fromJuly 1, 2019 toJune 30, 2020 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. In limited cases, when the acquisition of an acquired business does not include a contingent consideration arrangement, or we otherwise do not separately track the financial performance of the acquired business due to operational integration, we consider the revenues that the business generated in the 12 months prior to its acquisition to be our acquired revenues for the 12 months following its acquisition, and any differences in revenues 29 -------------------------------------------------------------------------------- Table of Contents actually generated during the 12 months after its acquisition to be organic. For example, if we completed an acquisition onJuly 1, 2020 for a business that did not include a contingent consideration arrangement, we would consider the amount of revenues from the acquired business fromJuly 1, 2019 toJune 30, 2020 to be acquired revenues during the period fromJuly 1, 2020 toJune 30, 2021 , 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 onJuly 1, 2020 for a business, we would consider the amount of revenues from the divested business fromJuly 1, 2019 toJune 30, 2020 to be subtracted from acquired revenues during the period fromJuly 1, 2020 toJune 30, 2021 . 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 theSEC , as well as higher expenses for general and director and officer insurance, investor relations, and professional services. Other (Income) Expenses Change in Fair Value of Warrant Liability Change in fair value of warrant liability represents a non-cash (income) expense resulting from a fair value adjustment to warrant liability with respect to the private placement warrants and based on the input assumptions used in the Black-Scholes option pricing model, including our stock price at the end of the reporting period, the implied volatility or other inputs to the model and the number of private placement warrants outstanding, which may vary from period to period. We believe these amounts are not correlated to future business operations. 30 -------------------------------------------------------------------------------- Table of Contents Interest Expense Interest expense relates primarily to borrowings under our first lien credit agreement and second lien credit agreement, which were paid off in connection with the Merger, and New Senior Secured Credit Facilities as described below. See " - Liquidity and Capital Resources ." 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 endedDecember 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 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), 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 atJune 30, 2021 . 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 or earnings, changes in existing tax laws and our assessment of uncertain tax positions. Cash Flows We have positive cash flow characteristics, as described below, due to the limited required capital investment in the fixed assets and working capital needs to operate our business in the normal course. See " -Liquidity and Capital Resources. " 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 are 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 Net Income Adjusted Net Income is a non-GAAP financial measure. Adjusted Net Income means net income (loss) before (i) impairment of goodwill and indefinite-lived assets, (ii) amortization of intangible assets, (iii) equity based compensation of Topco and Advantage Sponsors' management fee, (iv) changes in fair value of warrant liability, (v) fair value adjustments of contingent consideration related to acquisitions, (vi) acquisition-related expenses, (vii) costs associated with COVID-19, net of benefits received, (viii) EBITDA for economic interests in investments, (ix) restructuring expenses, (x) litigation expenses, (xi) (Recovery from) loss on Take 5, (xii) deferred financing fees, (xiii) costs associated with the Take 5 Matter, (xiv) other adjustments that management believes are helpful in evaluating our operating performance and (xv) related tax adjustments. 31 -------------------------------------------------------------------------------- Table of Contents We present Adjusted Net Income because we use it as a supplemental measure to evaluate the performance of our business in a way that also considers our ability to generate profit without the impact of items that we do not believe are indicative of our operating performance or are unusual or infrequent in nature and aid in the comparability of our performance from period to period. Adjusted Net Income should not be considered as an alternative for net income (loss), our most directly comparable measure presented on a GAAP basis. Adjusted EBITDA and Adjusted EBITDA by Segment Adjusted EBITDA and Adjusted EBITDA by segment are supplemental non-GAAP financial measures of our operating performance. Adjusted EBITDA means net 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 Topco and Advantage Sponsors' management fee, (vii) changes in fair value of warrant liability, (viii) stock-based compensation expense, (ix) fair value adjustments of contingent consideration related to acquisitions, (x) acquisition-related expenses, (xi) 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. We present Adjusted EBITDA and Adjusted EBITDA by segment because they are key operating measures used by us to assess our financial performance. These measures adjust for items that we believe do not reflect the ongoing operating performance of our business, such as certain noncash items, unusual or infrequent items or items that change from period to period without any material relevance to our operating performance. We evaluate these measures in conjunction with our results according to GAAP because we believe they provide a more complete understanding of factors and trends affecting our business than GAAP measures alone. Furthermore, the agreements governing our indebtedness contain covenants and other tests based on measures substantially similar to Adjusted EBITDA. Neither Adjusted EBITDA nor Adjusted EBITDA by segment should be considered as an alternative for net income (loss), for our most directly comparable measure presented on a GAAP basis. 32 -------------------------------------------------------------------------------- Table of Contents Results of Operations for the Three and Six Months EndedJune 30, 2021 and 2020 The following table sets forth items derived from the Company's consolidated statements of operations for the three and six months endedJune 30, 2021 and 2020 in dollars and as a percentage of total revenues. Three Months Ended June 30, Six Months Ended June 30, (amounts in thousands) 2021 2020 2021 2020 Revenues$ 849,954 100.0 %$ 641,543 100.0 %$ 1,640,975 100.0 %$ 1,520,939 100.0 % Cost of revenues 698,226 82.1 % 509,923 79.5 % 1,351,565 82.4 % 1,256,616 82.6 % Selling, general, and administrative expenses 46,607 5.5 % 80,569 12.6 % 87,088 5.3 % 121,625 8.0 % Recovery from Take 5 - 0.0 % (7,700 ) (1.2 )% - 0.0 % (7,700 ) (0.5 )% Depreciation and amortization 62,674 7.4 % 58,748 9.2 % 122,287 7.5 % 118,957 7.8 % Total expenses 807,507 95.0 % 641,540 100.0 % 1,560,940 95.1 % 1,489,498 97.9 % Operating income 42,447 5.0 % 3 0.0 % 80,035 4.9 % 31,441 2.1 % Other (income) expenses: Change in fair value of warrant liability (7,059 ) (0.8 )% - 0.0 % (1,533 ) (0.1 )% - 0.0 % Interest expense, net 37,189 4.4 % 51,521 8.0 % 68,054 4.1 % 103,315 6.8 % Total other (income) expenses 30,130 3.5 % 51,521 8.0 % 66,521 4.1 % 103,315 6.8 % Income (loss) before income taxes 12,317 1.4 %
(51,518 ) (8.0 )% 13,514 0.8 % (71,874 )
(4.7 )% Provision for (benefit from) income taxes 6,563 0.8 % (13,704 ) (2.1 )% 8,306 0.5 % (12,337 ) (0.8 )% Net income (loss)$ 5,754 0.7 %$ (37,814 ) (5.9 )%$ 5,208 0.3 %$ (59,537 ) (3.9 )% Other Financial Data Adjusted Net Income (1)$ 41,397 4.9 %$ 38,802 6.0 %$ 87,661 5.3 %$ 65,651 4.3 % Adjusted EBITDA (1)$ 121,971 14.4 %$ 112,044 17.5 %$ 233,399 14.2 %$ 218,395 14.4 %
(1) Adjusted Net Income and Adjusted EBITDA is a financial measure that is not
calculated in accordance with GAAP. For a discussion of our presentation of
Adjusted Net Income and Adjusted EBITDA and reconciliations of net income
(loss) to Adjusted Net Income and Adjusted EBITDA, see " -Non-GAAP Financial Measures ."
Comparison of the Three Months Ended
Three Months EndedJune 30 ,
Change
(amounts in thousands) 2021 2020 $ % Sales$ 561,644 $ 460,239 $ 101,405 22.0 % Marketing 288,310 181,304 107,006 59.0 % Total revenues$ 849,954 $ 641,543 $ 208,411 32.5 % Total revenues increased by$208.4 million , or 32.5%, during the three months endedJune 30, 2021 , as compared to the three months endedJune 30, 2020 . The sales segment revenues increased$101.4 million , of which$3.7 million were revenues from acquired businesses during the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . Excluding revenues from acquired businesses and favorable foreign exchange rates of$10.4 million , the segment experienced an increase of$87.3 million in organic revenues primarily due to growth in our retail merchandising services where we benefitted from expansions with existing and new clients and our international and foodservice businesses which experienced recoveries from temporary reductions as a result of the COVID-19 pandemic. The growth was offset by reduction in our headquarter sales where, due to the large increase in consumer purchases at retail to support incremental at-home consumption, our operations had experienced a favorable increase in volume and demand in the prior year. 33 -------------------------------------------------------------------------------- Table of Contents The marketing segment revenues increased$107.0 million during the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 , which includes revenues of$3.1 million from acquired businesses. Excluding revenues from acquired businesses and favorable foreign exchange rates of$2.1 million , the segment experienced an increase of$101.8 million in organic revenues. The increase in revenues was primarily due to an increase in our in-store sampling services from gradually lifting temporary suspensions as a result of recovery from the COVID-19 pandemic and continued growth in our digital marketing services. Cost of Revenues Cost of revenues as a percentage of revenues for the three months endedJune 30, 2021 was 82.1%, as compared to 79.5% for the three months endedJune 30, 2020 . The increase as a percentage of revenues was largely attributable to the change in the revenue mix of our services as a result of recoveries from the COVID-19 pandemic and investment to stand up associates on behalf of clients to restart services which were dormant during COVID-19. Selling, General and Administrative Expenses Selling, general and administrative expenses as a percentage of revenues for the three months endedJune 30, 2021 was 5.5%, as compared to 12.6% for the three months endedJune 30, 2020 . The decrease as a percentage of revenues for the three months endedJune 30, 2021 was primarily attributable to$39.6 million decrease in restructuring charges primarily associated with terminating certain office leases,$2.1 million decrease in acquisition-related expenses, partially offset by$9.0 million increase in stock-based compensation expense related to issuance of performance restricted stock units ("PSUs") and restricted stock units ("RSUs") with respect to our Class A common stock under theAdvantage Solutions Inc. 2020 Incentive Award Plan (the "2020 Plan"). Depreciation and Amortization Expense Depreciation and amortization expense increased$3.9 million , or 6.7%, to$62.7 million for the three months endedJune 30, 2021 , from$58.7 million for the three monthsJune 30, 2020 . The increase is primarily due to increase in depreciation expenses from our internally developed software and additional amortization of intangibles assets from acquisitions. Operating Income Three Months Ended June 30, Change (amounts in thousands) 2021 2020 $ % Sales$ 44,673 $ 11,021 $ 33,652 305.3 % Marketing (2,226 ) (11,018 ) 8,792 (79.8 )% Total operating income$ 42,447 $ 3$ 42,444 * * Not meaningful In the sales segment, the increase in operating income during the three months endedJune 30, 2021 was primarily attributable to growth in revenues as described above together with the decrease in restructuring charges primarily associated with terminating certain office leases and the change in fair value adjustments related to contingent consideration. In the marketing segment, the increase in operating income during the three months endedJune 30, 2021 was primarily attributable to the decrease in restructuring charges primarily associated with terminating certain office leases, partially offset by the change in fair value adjustments related to contingent consideration and recovery from Take 5 as described above. 34 -------------------------------------------------------------------------------- Table of Contents Change in Fair Value of Warrant Liability Change in fair value of warrant liability represents$7.1 million of non-cash gain resulting from a fair value adjustment to warrant liability with respect to the private placement warrants for the three months endedJune 30, 2021 . Fair value adjustments are based on the input assumptions used in the Black-Scholes option pricing model, including our Class A common stock price at the end of the reporting period, the implied volatility or other inputs to the model and the number of private placement warrants outstanding, which may vary from period to period. Interest Expense, net Interest expense decreased$14.3 million , or 27.8%, to$37.2 million for the three months endedJune 30, 2021 , from$51.5 million for the three months endedJune 30, 2020 . The decrease in interest expense, net was primarily due to the decrease in total debt as a result of the Transactions. Provision for (benefit from) Income Taxes Provision for income taxes was$6.6 million for the three months endedJune 30, 2021 as compared to a benefit from income taxes of$13.7 million for the three months endedJune 30, 2020 . The fluctuation was primarily attributable to the greater pre-tax income, unfavorable permanent book/tax differences related to officers' compensation including stock based awards and discrete items recorded for the three months endedJune 30, 2021 related to the remeasurement of deferred tax liabilities in theUK and US state jurisdictions due to income tax rate changes. Net Income Net income was$5.8 million for the three months endedJune 30, 2021 , compared to net loss of$37.8 million for the three months endedJune 30, 2020 . The increase in net income was primarily driven by the increase in operating income and decrease in interest expense as a result of the consummation of the Transactions and the fair value adjustment of warrant liability partially offset by unfavorable variance associated with the provision for income taxes as described above. Adjusted Net Income The increase in Adjusted Net Income for the three months endedJune 30, 2021 was attributable to the decrease in interest expense as a result of the consummation of the Transactions and increase in provision for income taxes. For a reconciliation of Adjusted Net Income to Net income (loss), see " - Non-GAAP Financial Measures." Adjusted EBITDA and Adjusted EBITDA by Segment Three Months Ended June 30, Change (amounts in thousands) 2021 2020 $ % Sales$ 89,523 $ 90,020 $ (497 ) (0.6 )% Marketing 32,448 22,024 10,424 47.3 % Total Adjusted EBITDA$ 121,971 $ 112,044 $ 9,927 8.9 % Adjusted EBITDA increased$9.9 million , or 8.9 %, to$122.0 million for the three months endedJune 30, 2021 , from$112.0 million for the three months endedJune 30, 2020 . The increase in Adjusted EBITDA was primarily attributable to the growth in revenues as described above. For a reconciliation of Adjusted EBITDA to net income, see "- Non-GAAP Financial Measures ." 35
--------------------------------------------------------------------------------
Table of Contents
Comparison of the Six Months EndedJune 30, 2021 and 2020
Revenues Six Months Ended June 30, Change (amounts in thousands) 2021 2020 $ % Sales$ 1,095,968 $ 968,037 $ 127,931 13.2 % Marketing 545,007 552,902 (7,895 ) (1.4 )% Total revenues$ 1,640,975 $ 1,520,939 $ 120,036 7.9 % Total revenues increased by$120.0 million , or 7.9%, during the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 . The sales segment revenues increased$127.9 million , of which$6.1 million were revenues from acquired businesses during the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . Excluding revenues from acquired businesses and favorable foreign exchange rates of$17.1 million , the segment experienced an increase of$104.7 million in organic revenues primarily due to growth in our headquarter and retail merchandising services where we benefitted from expansions with existing and new clients and an increase in eat-at-home consumption due to the COVID-19 pandemic, expansion in our e-commerce services, and our European businesses which experienced recoveries from temporary reductions as a result of the COVID-19 pandemic. The marketing segment revenues declined$7.9 million during the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 , which includes revenues of$7.0 million from acquired businesses. Excluding revenues from acquired businesses and favorable foreign exchange rates of$4.2 million , the segment experienced a decline of$19.1 million in organic revenues. The slight decrease in revenues was primarily due to the gradual lifting of temporary suspensions or reductions of certain in-store sampling services as a result of the COVID-19 pandemic partially offset by continued growth in our digital marketing services. Cost of Revenues Cost of revenues as a percentage of revenues for the six months endedJune 30, 2021 was 82.4%, as compared to 82.6% for the six months endedJune 30, 2020 , which is consistent year over year. Selling, General and Administrative Expenses Selling, general and administrative expenses as a percentage of revenues for the six months endedJune 30, 2021 was 5.3%, as compared to 8.0% for the six months endedJune 30, 2020 . The decrease as a percentage of revenues for the six months endedJune 30, 2021 was primarily attributable to$36.6 million decrease in restructuring charges primarily associated with terminating certain office leases,$12.5 million decrease in equity-based compensation expense associated with our Common Series D Units, and$5.7 million of the change in fair value adjustments related to contingent consideration, partially offset by$17.6 million of stock-based compensation expense related to issuance of PSUs and RSUs with respect to our Class A common stock under the 2020 Plan. Depreciation and Amortization Expense Depreciation and amortization expense increased$3.3 million , or 2.8%, to$122.3 million for the six months endedJune 30, 2021 , from$119.0 million for the six monthsJune 30, 2020 . The increase is primarily due to additional amortization expenses of intangibles from acquisitions. 36 --------------------------------------------------------------------------------
Table of Contents Operating Income Six Months Ended June 30, Change (amounts in thousands) 2021 2020 $ % Sales$ 79,822 $ 35,215 $ 44,607 126.7 % Marketing 213 (3,774 ) 3,987 (105.6 )% Total operating income$ 80,035 $ 31,441 $ 48,594 154.6 % In the sales segment, the increase in operating income during the six months endedJune 30, 2021 was primarily attributable to growth in revenues as described above together with our cost saving initiatives in response to COVID-19 pandemic. In the marketing segment, the increase in operating income during the six months endedJune 30, 2021 was primarily attributable to growth in revenues and the cost saving initiatives in response to COVID-19 pandemic, partially offset by recovery from Take 5 as described above. Change in Fair Value of Warrant Liability Change in fair value of warrant liability represents$1.5 million of non-cash gain resulting from a fair value adjustment to warrant liability with respect to the private placement warrants for the six months endedJune 30, 2021 . Fair value adjustment are based on the input assumptions used in the Black-Scholes option pricing model, including our Class A common stock price at the end of the reporting period, the implied volatility or other inputs to the model and the number of private placement warrants outstanding, which may vary from period to period. Interest Expense, net Interest expense decreased$35.3 million , or 34.1%, to$68.1 million for the six months endedJune 30, 2021 , from$103.3 million for the six months endedJune 30, 2020 . The decrease in interest expense, net was primarily due to the decrease in total debt as a result of the Transactions. Provision for (benefit from) Income Taxes Provision for income taxes was$8.3 million for the six months endedJune 30, 2021 as compared to a benefit from income taxes of$12.3 million for the six months endedJune 30, 2020 . The fluctuation was primarily attributable to the greater pre-tax income, unfavorable permanent differences related to officers' compensation including stock based awards and discrete items recorded for the six months endedJune 30, 2021 related to valuation allowance for the Company'sMexico operations and the remeasurement of deferred tax liabilities in theUK and US state jurisdictions due to income tax rate changes. Net Income Net income was$5.2 million for the six months endedJune 30, 2021 , compared to net loss of$59.5 million for the six months endedJune 30, 2020 . The increase in net income was primarily driven by the increase in operating income and decrease in interest expense as a result of the consummation of the Transactions partially offset by unfavorable variances associated with the provision for income taxes as described above. Adjusted Net Income The increase in Adjusted Net Income for the six months endedJune 30, 2021 was attributable to the decrease in interest expense as a result of the consummation of the Transactions and increase in provision for income taxes. For a reconciliation of Adjusted Net Income to Net income (loss), see "- Non-GAAP Financial Measures." 37 -------------------------------------------------------------------------------- Table of Contents Adjusted EBITDA and Adjusted EBITDA by Segment Six Months Ended June 30, Change (amounts in thousands) 2021 2020 $ % Sales$ 173,600 $ 168,583 $ 5,017 3.0 % Marketing 59,799 49,812 9,987 20.0 % Total Adjusted EBITDA$ 233,399 $ 218,395 $ 15,004 6.9 % Adjusted EBITDA increased$15.0 million , or 6.9 %, to$233.4 million for the six months endedJune 30, 2021 , from$218.4.0 million for the six months endedJune 30, 2020 . The increase in Adjusted EBITDA was primarily attributable to the growth in revenues as described above. For a reconciliation of Adjusted EBITDA to net income, see "- Non-GAAP Financial Measures ." 38
--------------------------------------------------------------------------------
Table of Contents Non-GAAP Financial Measures Adjusted Net Income is a non-GAAP financial measure. Adjusted Net Income means net income (loss) before (i) impairment of goodwill and indefinite-lived assets, (ii) amortization of intangible assets, (iii) equity based compensation of Topco and Advantage Sponsors' management fee, (iv) change in fair value of warrant liability, (v) fair value adjustments of contingent consideration related to acquisitions, (vi) acquisition-related expenses, (vii) costs associated with COVID-19, net of benefits received, (viii) EBITDA for economic interests in investments, (ix) restructuring expenses, (x) litigation expenses, (xi) (Recovery from) loss on Take 5, (xii) deferred financing fees, (xiii) costs associated with the Take 5 Matter, (xiv) other adjustments that management believes are helpful in evaluating our operating performance and (xv) related tax adjustments. We present Adjusted Net Income because we use it as a supplemental measure to evaluate the performance of our business in a way that also considers our ability to generate profit without the impact of items that we do not believe are indicative of our operating performance or are unusual or infrequent in nature and aid in the comparability of our performance from period to period. Adjusted Net Income should not be considered as an alternative for our Net income (loss), our most directly comparable measure presented on a GAAP basis. A reconciliation of Adjusted Net Income to Net income (loss) is provided in the following table: Three Months EndedJune 30 ,
Six Months Ended
2021 2020 2021 2020 (in thousands) Net income (loss)$ 5,754 $ (37,814 ) $ 5,208 $ (59,537 ) Less: Net loss attributable to noncontrolling interest (367 ) (410 ) (797 ) (425 )
Add:
Equity based compensation of Topco and Advantage Sponsors' management fee (a) (1,642 ) 4,184 (4,456 ) 8,021 Change in fair value of warrant liability (7,059 ) - (1,533 ) - Fair value adjustments related to contingent consideration related to acquisitions (c) 3,598 4,128 2,555 8,223 Acquisition-related expenses (d) 2,797 4,861 7,943 10,390 Restructuring expenses (e) 6,934 46,565 11,030 47,663 Litigation expenses (f) - 2,500 (818 ) 2,604 Amortization of intangible assets (g) 49,172 47,652 98,610 95,498 Costs associated with COVID-19, net of benefits received (h) (3,328 ) (1,019 ) (2,035 ) (19 ) Recovery from Take 5 - (7,700 ) - (7,700 ) Costs associated with the Take 5 Matter (i) 1,310 661 2,211 1,600 Tax adjustments related to non-GAAP adjustments (j) (16,506 ) (25,626 ) (31,851 ) (41,517 ) Adjusted Net Income$ 41,397 $ 38,802 $ 87,661 $ 65,651 Adjusted EBITDA and Adjusted EBITDA by segment are supplemental non-GAAP financial measures of our operating performance. 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 Topco and Advantage 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. 39
--------------------------------------------------------------------------------
Table of Contents We present Adjusted EBITDA and Adjusted EBITDA by segment because they are key operating measures used by us to assess our financial performance. These measures adjust for items that we believe do not reflect the ongoing operating performance of our business, such as certain noncash items, unusual or infrequent items or items that change from period to period without any material relevance to our operating performance. We evaluate these measures in conjunction with our results according to GAAP because we believe they provide a more complete understanding of factors and trends affecting our business than GAAP measures alone. Furthermore, the agreements governing our indebtedness contain covenants and other tests based on measures substantially similar to Adjusted EBITDA. Neither Adjusted EBITDA nor Adjusted EBITDA by segment should be considered as an alternative for our Net income (loss), our most directly comparable measure presented on a GAAP basis. A reconciliation of Adjusted EBITDA to Net income (loss) is provided in the following table:
© Edgar Online, source