Advantage Solutions Inc. (NASDAQ: ADV) (“Advantage,” “Advantage
Solutions,” the “Company,” “we” or “our”), a leading provider of
outsourced sales and marketing services to consumer goods
manufacturers and retailers, today reported financial results for
its fiscal fourth quarter and full fiscal year ended December 31,
2022.
“Over the past month, I’ve had the unique opportunity to meet
with many of our key clients, customers, and associates,” said
Advantage Solutions Chief Executive Officer, Dave Peacock.
“Throughout this process, I’ve quickly come to conclude that the
work Advantage provides is highly valued by our partners and
critical to the success of their businesses. These interactions
have made me even more passionate about what Advantage contributes
to the retail and CPG industries and the quality of our
associates.”
Mr. Peacock continued, “In joining Advantage I am most proud of
our people; they are the reason our core business has remained
resilient and why revenues for full year 2022 exceeded $4 billion
for the first time in Company history. While it is early in my
tenure, these topline results are indicative of a proven track
record across economic cycles and offer our Company a great
foundation to continue building upon going forward.”
Fourth Quarter 2022 Highlights
- Revenues were $1,102.8 million for the fourth quarter of 2022,
representing an increase of $70.2 million, or 6.8%, from the fourth
quarter 2021 revenues of $1,032.6 million.
- Operating loss of $1,537.5 million for the fourth quarter of
2022, representing a decrease of $1,621.9 million from the fourth
quarter 2021 operating income of $84.4 million.
- Net loss of $1,421.7 million for the fourth quarter of 2022,
representing a decrease of $1,449.7 million from the fourth quarter
2021 net income of $28.0 million.
- Adjusted EBITDA was $112.7 million for the fourth quarter of
2022, representing a decrease of $41.4 million, or 26.9%, from the
fourth quarter 2021 Adjusted EBITDA of $154.0 million.
The year-over-year increase in revenues was driven by $36.3
million of growth in the marketing segment (an increase of 9% year
over year) and $33.9 million of growth in the sales segment (an
increase of 5% year over year). Fourth quarter growth in the
marketing segment was driven primarily by the continued recovery of
our in-store sampling and demonstration services, partially offset
by a decrease in media spend by certain clients. The fourth quarter
growth in the sales segment was driven by an increase in retail
merchandising services and international businesses, partially
offset by a decrease in third-party reselling services.
The $1,537.5 million operating loss for the fourth quarter of
2022 was primarily due to a $1,367.5 million non-cash goodwill
impairment charge and a $205 million intangible asset impairment
charge in the indefinite-lived trade names. These impairment
charges were mainly due to a sustained decline in the Company’s
quoted share price, challenges in the labor market and continued
inflationary pressures, and the rising interest rates in the
current macroeconomic environment.
The year-over-year decrease in net income was driven by the
decline in operating income and an increase in interest
expense.
The year-over-year decline in Adjusted EBITDA was primarily due
to inflationary cost pressures and ongoing mix shift dynamics
across the enterprise.
Fiscal Year 2022 Highlights
- Revenues were $4,049.7 million for fiscal 2022, representing an
increase of $447.4 million, or 12.4%, from fiscal 2021 revenues of
$3,602.3 million.
- Operating loss of $1,439.4 million for fiscal 2022,
representing a decrease of $1,669.5 million, from fiscal 2021
operating income of $230.0 million.
- Net loss of $1,377.3 million for fiscal 2022, representing a
decrease of $1,434.8 million, from fiscal 2021 net income of $57.5
million.
- Adjusted EBITDA was $436.0 million for fiscal 2022,
representing a decrease of $85.2 million, or 16.3%, from fiscal
2021 Adjusted EBITDA of $521.2 million.
The year-over-year increase in revenues was driven by $264.3
million of growth in the marketing segment (an increase of 21% year
over year) and $183.1 million of growth in the sales segment (an
increase of 8% year over year). 2022 revenue growth in the
marketing segment was driven primarily by the continued recovery of
our in-store demonstration and sampling services, partially offset
by a decrease in media spend by certain clients. Revenue growth in
the sales segment for 2022 was driven by an increase in retail
merchandising services and international businesses, partially
offset by a decrease in third party reselling services and
foodservice.
As mentioned above, the Company recognized a $1,367.5 million
non-cash goodwill impairment charge and a $205 million intangible
asset impairment charge in the indefinite-lived trade names in
2022.
The year-over-year increase in operating loss was primarily due
to the aforementioned non-cash goodwill and non-cash intangible
asset impairment charges and the increase in cost of revenues,
partially offset by the growth in revenues.
The year-over-year decrease in net income was driven by the
decline in operating income.
The year-over-year decline in Adjusted EBITDA was primarily due
to inflationary cost pressures in wages and ancillary spend,
coupled with market headwinds.
Balance Sheet Highlights
As of December 31, 2022, the Company’s cash and cash equivalents
was $120.7 million, total debt was $2,079.2 million and Net Debt
was $1,958.5 million. The debt capitalization consists primarily of
the $1,299 million First Lien Term Loan and $775 million of senior
secured notes as of December 31, 2022.
Fiscal Year 2023 Outlook
The Company is initiating its outlook for fiscal 2023.
Considering the market conditions as of the date of this press
release, Adjusted EBITDA is anticipated to range from $400 million
to $420 million prior to adjustments related to any acquisitions
and divestitures. This guidance range takes into account the tight
labor market, inflationary pressures, and broad macro headwinds
impacting consumers, retailers, and CPG brands, alike. Based on
strong customer demand, however, the Company remains confident that
its in-store sampling and demonstration services will continue to
build back in 2023.
Conference Call Details
Advantage will host a conference call at 5:00 p.m. ET on March
1, 2023 to discuss its fourth quarter and fiscal year 2022
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
13735201. The conference call will also be accessible live via
audio broadcast on the Investor Relations section of the Advantage
website at ir.advantagesolutions.net.
A replay of the conference call will be available online on the
investor section of the Advantage website. 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 13735201.
About Advantage Solutions
Advantage Solutions (NASDAQ: ADV) is a leading
provider of outsourced sales and marketing solutions to consumer
goods companies and retailers. Our data- and technology-driven
services — which include headquarter sales, retail merchandising,
in-store and online sampling, digital commerce, omnichannel
marketing, retail media and others — help brands and retailers of
all sizes get products into the hands of consumers, wherever they
shop. As a trusted partner and problem solver, we help our clients
sell more while spending less. Headquartered in Irvine,
California, we have offices throughout North America and strategic
investments in select markets throughout Africa, Asia, Australia
and Europe through which we serve 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 and projected
financial results. 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”, “could”, “estimate”, “anticipate”, “believe”,
“predict”, “confident”, “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.
These forward-looking statements are based upon
estimates and assumptions that, while considered reasonable by
Advantage and its management at the time of such statements, are
inherently uncertain. Factors that may cause actual results to
differ materially from current expectations include, but are not
limited to, market-driven wage changes or changes to labor laws or
wage or job classification regulations, including minimum wage; the
COVID-19 pandemic and the measures taken in response thereto; the
availability, acceptance, administration and effectiveness of any
COVID-19 vaccine; 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 maintain proper and effective internal control over
financial reporting 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 1, 2023, 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 Adjusted EBITDA and Net
Debt. These are not measures of financial performance calculated in
accordance with GAAP and may exclude items that are significant in
understanding and assessing 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 and in comparing 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 (loss) income before
(i) interest expense, net, (ii) provision for (benefit from) 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., (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 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. We
present Net Debt because we believe this non-GAAP measure 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.
Due to rounding, numbers presented throughout
this document may not add up precisely to the totals provided and
percentages may not precisely reflect the absolute figures.
This press release also includes certain
estimates and projections of Adjusted EBITDA, including with
respect to expected fiscal 2023 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.
Advantage Solutions
Inc.Reconciliation of Net Income to Adjusted
EBITDA(Unaudited)
Consolidated |
Three Months Ended December 31, |
|
Year Ended December 31, |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
(in
thousands) |
|
|
|
|
|
|
|
Net (loss) income |
$ |
(1,421,729 |
) |
|
$ |
28,014 |
|
|
$ |
(1,377,292 |
) |
|
$ |
57,549 |
|
Add: |
|
|
|
|
|
|
|
Interest expense, net |
|
40,831 |
|
|
|
33,383 |
|
|
|
104,459 |
|
|
|
137,927 |
|
Provision for income taxes |
|
(156,860 |
) |
|
|
17,035 |
|
|
|
(145,337 |
) |
|
|
33,617 |
|
Depreciation and
amortization |
|
59,078 |
|
|
|
58,591 |
|
|
|
233,075 |
|
|
|
240,041 |
|
Impairment of goodwill and
indefinite-lived assets |
|
1,572,523 |
|
|
|
— |
|
|
|
1,572,523 |
|
|
|
— |
|
Equity-based compensation of
Karman Topco L.P.(a) |
|
208 |
|
|
|
(282 |
) |
|
|
(6,934 |
) |
|
|
(10,313 |
) |
Change in fair value of warrant
liability |
|
220 |
|
|
|
5,979 |
|
|
|
(21,236 |
) |
|
|
955 |
|
Stock-based compensation
expense(b) |
|
9,919 |
|
|
|
9,105 |
|
|
|
39,825 |
|
|
|
34,602 |
|
Fair value adjustments related to
contingent consideration related to acquisitions(c) |
|
(674 |
) |
|
|
(1,214 |
) |
|
|
4,774 |
|
|
|
4,562 |
|
Acquisition-related
expenses(d) |
|
4,059 |
|
|
|
7,120 |
|
|
|
23,902 |
|
|
|
20,173 |
|
EBITDA for economic interests in
investments(e) |
|
(5,342 |
) |
|
|
(6,821 |
) |
|
|
(12,888 |
) |
|
|
(13,437 |
) |
Restructuring expenses(f) |
|
1,636 |
|
|
|
1,866 |
|
|
|
6,094 |
|
|
|
12,502 |
|
Litigation expenses(g) |
|
6,157 |
|
|
|
— |
|
|
|
5,357 |
|
|
|
(910 |
) |
Costs associated with COVID-19,
net of benefits received(h) |
|
2,263 |
|
|
|
(43 |
) |
|
|
7,208 |
|
|
|
(991 |
) |
Costs associated with the Take 5
Matter(j) |
|
377 |
|
|
|
1,290 |
|
|
|
2,465 |
|
|
|
4,901 |
|
Adjusted EBITDA |
$ |
112,666 |
|
|
$ |
154,023 |
|
|
$ |
435,995 |
|
|
$ |
521,178 |
|
(a) |
Represents expenses related to
(i) equity-based compensation expense associated with grants of
Common Series D Units of Karman Topco L.P. (“Topco”) made to one of
the equity holders of Topco and (ii) equity-based compensation
expense associated with the Common Series C Units of Topco. |
(b) |
Represents non-cash compensation
expense related to the 2020 Incentive Award Plan and the 2020
Employee Stock Purchase Plan. |
(c) |
Represents adjustments to the
estimated fair value of our contingent consideration liabilities
related to our acquisitions for the applicable periods. |
(d) |
Represents fees and costs
associated with activities related to our acquisitions and
restructuring activities including professional fees, due
diligence, and integration activities. |
(e) |
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. |
(f) |
Represents fees and costs
associated with various internal reorganization activities among
our consolidated entities. |
(g) |
Represents legal settlements,
reserves, and expenses that are unusual or infrequent costs
associated with our operating activities. |
(h) |
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. |
(i) |
Represents costs associated with
the Take 5 Matter, primarily, professional fees and other related
costs. |
|
|
Advantage Solutions
Inc.Reconciliation of Total Debt to Net
Debt(Unaudited)
(in
millions) |
December 31, 2022 |
|
Current portion of long-term debt |
$ |
|
14.0 |
|
Long-term debt, net of current
portion |
|
|
2,022.8 |
|
Less: Debt issuance costs |
|
|
(42.4 |
) |
Total Debt |
|
|
2,079.2 |
|
Less: Cash and cash
equivalents |
|
|
120.7 |
|
Total Net Debt |
$ |
|
1,958.5 |
|
Contacts: Kimberly EsterkinAddo Investor
Relationsinvestorrelations@advantagesolutions.net
(310) 829-5400
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