Advantage Solutions Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023. Financial statement amounts below are in U.S. dollars. The company provides outsourced services to consumer goods manufacturers and retailers. Effective January 1, 2024, it reorganized reporting into Branded Services, Experiential Services and Retailer Services; prior segment results were recast.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue from continuing operations | $879.0 million | $944.4 million |
| Gross profit (revenue less cost of revenue) | $115.1 million; 13.1% margin | $117.5 million; 12.4% margin |
| Operating income (loss), continuing operations | $(26.8) million | $6.7 million |
| Net income (loss), continuing operations | $(49.1) million | $(34.4) million |
| Net income (loss) attributable to Advantage stockholders | $(5.3) million; $(0.02) per share | $(47.6) million; $(0.15) per share |
| Adjusted EBITDA, including continuing and discontinued operations | $78.8 million | $92.1 million |
| Adjusted Net Income | $14.9 million | $13.8 million |
| Net cash from (used in) continuing operating activities | $(8.9) million | $41.4 million |
SG&A was $89.7 million, or 10.2% of revenue, versus $56.3 million, or 6.0%. Interest expense, net, was $35.8 million, down from $47.2 million. Discontinued operations produced $46.0 million of net income, including a reported $56.6 million gain on the foodservice divestiture; Q1 2023 discontinued operations had a $13.3 million net loss.
At March 31, cash and cash equivalents were $112.3 million, with another $15.7 million of restricted cash. Gross principal debt was approximately $1.84 billion: $1.15 billion under the Term Loan Facility and $692.0 million of Senior Secured Notes. The company reported no revolver borrowings and approximately $500 million of unused capacity, subject to borrowing-base limits; about $44.1 million of letters of credit were outstanding. Current assets were $932.1 million and current liabilities $476.9 million, including discontinued-operation balances.
Changes and significant transactions
- Revenue fell 6.9% year over year. Management said revenue increased 3.0% excluding the European joint venture deconsolidation and unfavorable foreign exchange. Branded Services revenue declined 22.6%, primarily reflecting the lost $93.4 million prior-year joint-venture revenue, an intentional client resignation and order timing. Experiential Services grew 19.5%, driven by event volume and pricing; Retailer Services declined 6.3%, primarily due to merchandising timing and projects completed in the prior year.
- Operating results deteriorated to a continuing-operations loss. Management cited higher support-service and technology investment and increased internal reorganization costs, including professional fees and severance. Adjusted EBITDA declined 14.5%, with Branded and Retailer Services weaker and Experiential Services stronger.
- On January 31, the company sold foodservice businesses for approximately $91 million, subject to working-capital adjustments, and retained a 7.5% equity-method interest valued at $8.4 million. It repurchased $51 million principal amount of Senior Secured Notes during the quarter and reported a $2.7 million gain on repurchase. Financing activities also included an $11.7 million treasury-stock purchase.
- In May 2024, after quarter-end, the company sold a branded marketing agency previously held for sale for approximately $42.5 million, less estimated working-capital adjustments. The gain or loss had not been determined when the filing was submitted.
Outlook, risks and unusual items
- The filing provides no specific revenue, earnings or cash-flow guidance. Management describes ongoing portfolio simplification and says it expects domestic cash and operating cash flows to fund domestic operations and commitments for at least the next 12 months. It may use divestiture proceeds for investment, debt reduction, financial flexibility, share repurchases or acquisitions.
- The Term Loan Facility carries a floating SOFR-based rate; the Notes bear 6.50% interest and mature in November 2028. The company reported compliance with debt covenants at quarter-end. An April 2024 amendment reduced the Term Loan margin by 0.25 percentage points.
- Disposal groups were presented as discontinued operations after management determined the combined divestitures and planned sales represented a strategic shift. The company cautions that Q1 results may not indicate full-year performance; it also notes seasonal revenue patterns, wage and other inflation, client and project timing, foreign-exchange exposure, and dependence on estimates used in goodwill valuations. Branded Agencies and Experiential Services goodwill fair values were less than 20% above carrying values at the January 2024 assessment.
- Contingencies include ordinary-course commercial and employment litigation and the Take 5 matter, involving prior misconduct, possible further claims or investigations, and potential liabilities the company says it cannot currently estimate. Collection timing of an arbitration award in the company’s favor is also uncertain.
- Management reported effective disclosure controls as of March 31, 2024, and no material changes to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether revenue and operating performance improve after the joint-venture deconsolidation, portfolio exits and client/order timing effects.
- Whether continuing operations convert to positive operating cash flow, given the Q1 outflow and the company’s substantial debt burden.
- The final proceeds, working-capital adjustments and gain or loss from the May agency sale, and the use of divestiture proceeds.
- The scale, duration and cash impact of reorganization and technology costs; the filing’s non-GAAP adjustments include $37.1 million of reorganization expenses in Q1 2024.
- Progress on debt reduction, floating-rate exposure and revolver availability, including borrowing-base restrictions.
- Developments in the Take 5 matter and other litigation, and any impairment indicators affecting goodwill or intangible assets.