Advantage Solutions Inc. (NASDAQ: ADV) (“Advantage,” the “Company,”
“we” or “our”), the leading provider of outsourced sales and
marketing services to consumer goods manufacturers and retailers,
today reported financial results for its fiscal third quarter ended
September 30, 2021.
“We are pleased with how our team navigated the
third quarter,” said Tanya Domier, Chief Executive Officer of
Advantage. “At-home consumer demand remains elevated – supported by
steady volume and rising prices. Our higher growth, higher margin
digital services continue to outperform. And we are investing and
will continue to invest to stand up critical services for brands
and retailers,” Domier commented. “While the operating environment
remains dynamic during the pandemic, we’re confident in delivering
against FY 2021 Adjusted EBITDA guidance of $520 to $530 million.
Demand for our essential services remains high as we help our
partners navigate through unprecedented change – in both
brick-and-mortar and e-commerce. And we’ve been disciplined in
realizing price to offset wage inflation in our most labor
intensive services.”
“Importantly, I’d like to again thank our
associates. They’re providing essential, high ROI services to
consumer goods companies and retailers – helping to lead our
clients and communities out of this pandemic better, cheaper and
faster,” Domier added.
Third Quarter 2021 Highlights
- Revenues were $928.8 million for the third quarter of 2021,
representing an increase of $144.4 million, or 18.4%, from the
third quarter of 2020 revenues of $784.3 million.
- Operating income was $65.6 million for the third quarter of
2021, representing a decline of $23.0 million, or 26.0%, from the
third quarter of 2020 operating income of $88.6 million.
- Net income was $24.3 million for the third quarter of 2021,
representing a decline of $12.4 million, or 33.8%, from the third
quarter of 2020 net income of $36.7 million.
- Adjusted EBITDA was $133.8 million for the third quarter of
2021, representing a decline of $2.5 million, or 1.8%, from the
third quarter of 2020 Adjusted EBITDA of $136.3 million.
The year-over-year increase in revenues was driven
by $89.3 million of growth in the marketing segment (an increase of
37% year-over-year), and $55.1 million of growth in the sales
segment (an increase of 10% year-over-year). Third
quarter growth in the marketing segment was driven by continued
sequential recovery in product demonstration and sampling and
sustained outperformance in our digital businesses. Third quarter
growth in the sales segment was driven by continued growth in our
retailer merchandising services and a rebound in international.
The year-over-year decline in operating income was
driven primarily by a difficult comparison given a favorable
settlement of lease liability obligations associated with real
estate realignment initiatives in 2020 and a non-cash change in
fair value adjustments related to contingent consideration.
The year-over-year decline in net income was driven
primarily by lower operating income, partially offset by lower
year-on-year interest expense and a fair value adjustment to
warrant liability.
The year-over-year decline in Adjusted EBITDA was
driven primarily by investments to stand up tens of thousands of
associates in two areas – the fast-growing retail merchandising
operation, and the sampling and demonstration business that’s
coming back to life post-COVID. Adjusted EBITDA was also impacted
by expected volume normalization in headquarter sales services and
by the roll-off of ancillary COVID-related services that aided
EBITDA in the prior year.
Balance Sheet Highlights
As of September 30, 2021, the Company’s cash and
cash equivalents was $168.0 million, total debt was $2,039.0
million and Net Debt was $1,925.0 million. The debt capitalization
consists primarily of a $1,315.1 million First Lien Term Loan
facility, $775 million of senior secured notes and a $400 million
revolving credit facility, under which no balance was outstanding
as of September 30, 2021.
Subsequent Events
On October 28, 2021, Advantage successfully
repriced its $1,315 million First Lien Term Loan facility. The
spread on its floating rate term loan was reduced by 75 basis
points from Libor + 5.25% to Libor + 4.50%. The facility remains
subject to the 0.75% Libor floor. The effective rate on this
facility at the floor was reduced from 6.00% to 5.25%, and yields a
projected interest savings of $10 million, or $7 million after
tax.
On November 9, 2021, Advantage announced that its
Board of Directors had approved and authorized an open-ended share
repurchase program up to $100 million. This program will allow
Advantage to be opportunistic in allocating capital to share
repurchase. Advantage CEO Tanya Domier noted, “As long-term
stewards and owners, we are excited to have the flexibility to
invest opportunistically in the asset we know best – our own
stock.”
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.
While at-home demand volumes remain elevated versus
pre-pandemic levels, they are normalizing. Price trends are
accelerating on shelf though, offsetting some of the volume
normalization.
The COVID-19 pandemic continues to be a temporary
headwind in the marketing segment. The Company’s in-store sampling
business, the largest category in the marketing segment, continues
to recover from 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 throughout
the third quarter of 2021. Event counts in the third quarter of
2021 were up 13% sequentially from the second quarter of 2021.
The Company expects the COVID-19 pandemic will
continue to impact its various businesses into the first half of
2022. This is based on the belief that global supply chain
disruptions, the uncertain path of the Delta variant and variable
rates of vaccination will impact the recovery path from here.
FY 2021 Outlook
While the range of fundamental outcomes remains
wider than normal, our Company’s solid year-to-date performance
gives us confidence in affirming our full year Adjusted EBITDA
guidance of $520 million to $530 million. Our forecasted Adjusted
EBITDA assumes that elevated at-home demand for consumer goods
normalizes a bit more in the fourth quarter of 2021, that weakness
in the marketing segment from COVID-related headwinds eases further
into the holidays, that solid pricing for wage inflation flows
through in our most labor-intensive businesses and that the costs
to recruit, train and retain large teams of new associates
post-pandemic remains elevated.
Conference Call Details
Advantage will host a conference call at 5:00 p.m.
ET on November 9, 2021 to discuss its third quarter financial
performance and business outlook. To participate, please dial (844)
825-9789 within the United States or (412) 317-5180 outside the
United States approximately 10 minutes before the scheduled start
of the call. The conference ID for the call is 10161125. 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 10161125.
About Advantage Solutions
Advantage Solutions is the leading provider of
outsourced sales and marketing solutions to consumer goods
companies and retailers. We have a strong platform of
technology-enabled, competitively advantaged services like
headquarter sales, retail merchandising, in-store sampling, digital
commerce and omnichannel 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. As a trusted partner and problem solver, we help our clients
sell more while spending less. 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/A filed by the Company
with the Securities and Exchange Commission (the “SEC”) on May 17,
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 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 and Net Debt provides an additional tool for
investors to use in evaluating ongoing operating results and trends
in and in comparing the Advantage’s financial measures with other
similar companies, many of which present similar non-GAAP financial
measures to investors. Non-GAAP financial measures are subject to
inherent limitations as they reflect the exercise of judgments by
management about which expense and income are excluded or included
in determining these non-GAAP financial measures. Additionally,
other companies may calculate non-GAAP measures differently, or may
use other measures to calculate their financial performance, and
therefore Advantage’s non-GAAP measures may not be directly
comparable to similarly titled measures of other companies.
Adjusted EBITDA means net income 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 September 30, 2021 and 2020
|
Three Months Ended September 30, |
|
(amounts in
thousands) |
2021 |
|
|
2020 |
|
Revenues |
$ |
928,760 |
|
100.0 |
% |
|
$ |
784,345 |
|
100.0 |
% |
Cost of revenues |
|
766,253 |
|
82.5 |
% |
|
|
625,363 |
|
79.7 |
% |
Selling, general, and
administrative expenses |
|
37,742 |
|
4.1 |
% |
|
|
11,855 |
|
1.5 |
% |
Depreciation and
amortization |
|
59,163 |
|
6.4 |
% |
|
|
58,556 |
|
7.5 |
% |
Total expenses |
|
863,158 |
|
92.9 |
% |
|
|
695,774 |
|
88.7 |
% |
Operating income |
|
65,602 |
|
7.1 |
% |
|
|
88,571 |
|
11.3 |
% |
Other (income) expenses: |
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant
liability |
|
(3,491 |
) |
(0.4 |
)% |
|
|
— |
|
0.0 |
% |
Interest expense, net |
|
36,490 |
|
3.9 |
% |
|
|
48,243 |
|
6.2 |
% |
Total other expenses |
|
32,999 |
|
3.6 |
% |
|
|
48,243 |
|
6.2 |
% |
Income before income taxes |
|
32,603 |
|
3.5 |
% |
|
|
40,328 |
|
5.1 |
% |
Provision for income taxes |
|
8,276 |
|
0.9 |
% |
|
|
3,623 |
|
0.5 |
% |
Net income |
$ |
24,327 |
|
2.6 |
% |
|
$ |
36,705 |
|
4.7 |
% |
Other Financial
Data |
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(1) |
$ |
133,756 |
|
14.4 |
% |
|
$ |
136,253 |
|
17.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
We present Adjusted EBITDA
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 EBITDA should not be
considered as an alternative for net income, our most directly
comparable measure presented on a GAAP basis. |
|
|
A reconciliation of net income to Adjusted EBITDA
is provided in the following table:
|
|
|
|
Three Months Ended September 30, |
|
|
2021 |
|
|
2020 |
|
(in thousands) |
|
|
|
|
|
|
|
Net income |
$ |
24,327 |
|
|
$ |
36,705 |
|
Add: |
|
|
|
|
|
|
|
Interest expense, net |
|
36,490 |
|
|
|
48,243 |
|
Provision for income taxes |
|
8,276 |
|
|
|
3,623 |
|
Depreciation and
amortization |
|
59,163 |
|
|
|
58,556 |
|
Equity based compensation of
Topco and Advantage Sponsors’ management fee(a) |
|
(5,575 |
) |
|
|
1,468 |
|
Change in fair value of warrant
liability |
|
(3,491 |
) |
|
|
— |
|
Stock based compensation
expense(b) |
|
7,854 |
|
|
|
— |
|
Fair value adjustments related to
contingent consideration related to acquisitions(c) |
|
3,221 |
|
|
|
(6,184 |
) |
Acquisition-related
expenses(d) |
|
5,110 |
|
|
|
3,683 |
|
EBITDA for economic interests in
investments(i) |
|
(3,620 |
) |
|
|
(2,005 |
) |
Restructuring expenses(e) |
|
(394 |
) |
|
|
(7,635 |
) |
Litigation expenses(f) |
|
(92 |
) |
|
|
(31 |
) |
Costs associated with COVID-19,
net of benefits received(g) |
|
1,087 |
|
|
|
(1,389 |
) |
Costs associated with the Take 5
Matter(h) |
|
1,400 |
|
|
|
1,219 |
|
Adjusted EBITDA |
$ |
133,756 |
|
|
$ |
136,253 |
|
|
|
|
|
|
|
|
|
(a) |
Represents the management fees and reimbursements for expenses paid
to certain of the Advantage Sponsors (or certain of the management
companies associated with it or its advisors) pursuant to a
management services agreement in the three and nine months ended
September 30, 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
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 that were accelerated and terminated as part of the
Transactions, and (iv) compensation amounts associated with the
anniversary payments to Tanya Domier. Certain of Ms. Domier’s
anniversary payments were accelerated as part of the
Transactions. |
|
|
(b) |
Represents non-cash compensation
expense related to issuance of performance restricted stock units,
restricted stock units, stock options, employee stock purchase plan
under the Advantage Solutions Inc. 2020 Incentive Award Plan and
shares of our Class A common stock pursuant to the Advantage
Solutions Inc. 2020 Employee Stock Purchase 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 costs associated with
investigation and remediation activities related to the Take 5
Matter, primarily, professional fees and other related costs, for
the three and nine months ended September 30, 2021 and 2020,
respectively. |
|
|
(i) |
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) |
September 30, 2021 |
|
Current portion of long-term debt |
$ |
13.4 |
|
Long-term debt, net of current
portion |
|
2,026.0 |
|
Less: Debt issuance costs |
|
(53.6 |
) |
Total Debt |
|
2,093.0 |
|
Less: Cash and cash
equivalents |
|
168.0 |
|
Total Net Debt (a) |
$ |
1,925.0 |
|
|
|
|
|
|
|
(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
Advantage Solutions (NASDAQ:ADV)
Historical Stock Chart
From Mar 2024 to Apr 2024
Advantage Solutions (NASDAQ:ADV)
Historical Stock Chart
From Apr 2023 to Apr 2024