Advantage Solutions Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed March 1, 2024. This is an annual report, not a standalone fourth-quarter earnings report, and the filing does not provide a clear set of Q4-only results.
Business context
Advantage provides outsourced sales, merchandising, sampling, shopper marketing, private-label and digital marketing services to consumer goods manufacturers and retailers. For 2023, it reported two segments: Sales (57.9% of revenue) and Marketing (42.1%). The company said organizational changes are expected to create three reportable segments beginning in 2024.
Key financial metrics
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Revenue | $4,224.8 million | $4,049.7 million |
| Gross profit / margin | $564.4 million / 13.4% | $556.6 million / 13.7% |
| Operating income (loss) / margin | $76.2 million / 1.8% | $(1,439.4) million / (35.5)% |
| Net loss | $(60.3) million | $(1,377.3) million |
| Adjusted EBITDA (non-GAAP) / margin | $424.3 million / 10.0% | $436.0 million / 10.8% |
| Adjusted Net Income (non-GAAP) | $123.8 million | $206.6 million |
| Net cash from operating activities | $239.0 million | $121.3 million |
| Capital expenditures | $46.3 million | $40.5 million |
| Interest expense, net | $165.8 million | $104.5 million |
| Total debt, excluding issuance costs | $1,897.5 million | $2,079.2 million |
At year-end, cash and cash equivalents were $126.5 million, restricted cash was $16.4 million, current assets were $1,012.0 million and current liabilities were $541.3 million. The $500 million asset-based revolving facility had $44.1 million of letters of credit outstanding; the filing states borrowing capacity was subject to borrowing-base limits. Debt included a $1,149.1 million floating-rate term loan and $743.0 million of 6.5% senior secured notes. The term loan matures primarily in 2027; the notes mature in 2028.
Changes versus prior year
- Revenue rose 4.3%. Marketing revenue increased 15.4% to $1,779.8 million, including growth in in-store sampling and demonstrations. Sales revenue declined 2.5% to $2,445.0 million; excluding divestitures, the European JV deconsolidation and other stated effects, the company reported $28.2 million of organic growth in Sales.
- Adjusted EBITDA declined 2.7%, as Marketing growth was more than offset by lower Sales Adjusted EBITDA, inflationary cost pressure and higher incentive compensation and technology expenses. Management also cited headwinds in higher-margin digital services.
- Operating results improved sharply against 2022, when the company recorded $1,572.5 million of goodwill and indefinite-lived intangible impairments. The 2023 comparison also included a $58.9 million gain from deconsolidating its European joint venture and a $43.5 million non-cash sales trade-name impairment.
- Operating cash flow increased by $117.7 million, which management primarily attributed to working-capital needs to launch services being higher in 2022. Debt declined by about $181.7 million, including $156.6 million of debt repurchases and scheduled principal payments.
Outlook, unusual items and risks
- Outlook: The filing provides no specific revenue, earnings or margin guidance. Management stated that domestic cash and operating cash flows, together with current borrowing capacity, are expected to fund domestic operations and cash commitments for at least the next 12 months and the foreseeable future. This is a forward-looking statement, not a guarantee.
- Foodservice divestiture: The company sold a collection of foodservice businesses in Q1 2024 for approximately $91 million, less estimated working-capital adjustments, and retained a 7.5% stake in the combined entity. The gain or loss was not yet determinable in the filing.
- European JV: In November 2023, Advantage reduced its interest in Advantage Smollan Limited to 49.6% and relinquished certain rights, resulting in deconsolidation and a $58.9 million accounting gain. The retained investment is equity-method accounted for.
- Debt and rates: Substantial indebtedness, variable-rate borrowing costs, debt covenants and refinancing access remain important risks. Interest expense increased 58.7% in 2023. The company reported interest-rate caps and collars, but these do not eliminate rate exposure.
- Operations and legal matters: Key risks include labor availability, turnover and wage inflation; client concentration and spending changes; retailer consolidation and pricing pressure; technology and ERP implementation; cybersecurity and privacy compliance; and ordinary-course employment and commercial litigation. The five largest clients represented 18.8% of 2023 revenue, with none individually above 5%.
- Take 5 Matter: The company continues to cooperate with government investigations and cannot estimate potential additional exposure. It is pursuing collection of an arbitration award against the former sellers, but cannot estimate whether or when collection will occur. The balance sheet included $9.4 million of client refunds related to the matter.
- Other items: Reorganization expenses were $57.0 million under the company’s non-GAAP reconciliation. The auditor reported effective internal control over financial reporting; the company is implementing a multi-year ERP system. The 2023 annual goodwill test found no impairment, but the marketing reporting unit’s fair value exceeded carrying value by only 6.8%.
Important facts for investors to verify
- Review the reconciliation of Adjusted EBITDA and Adjusted Net Income to GAAP results, including the exclusions and recurring nature of adjustments.
- Assess cash conversion, working-capital requirements, capital expenditure needs and the sustainability of operating cash flow relative to interest and debt obligations.
- Check debt terms, variable-rate exposure, covenant headroom, maturity/refinancing plans and remaining borrowing capacity under the revolver.
- Track results under the new three-segment structure and the realized financial impact of the foodservice sale and retained 7.5% interest.
- Monitor client retention and concentration, labor costs, digital-service performance, ERP implementation, and any developments in the Take 5 investigations or litigation.
- Consider potential dilution and capital allocation: the company repurchased $6.4 million of shares in 2023 and repurchased 3.0 million additional shares from January 2 through February 29, 2024; it has no current plan to pay cash dividends.