Advantage Solutions Inc. quarterly report, Q3 FY2020

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Filing identity and reporting period

This is Conyers Park II Acquisition Corp.’s unaudited Form 10-Q for the quarter ended September 30, 2020, not Advantage Solutions Inc.’s standalone quarterly filing. It reports the SPAC’s results and describes its proposed business combination with Advantage.

Business context and proposed transaction

Conyers Park II was a blank-check company seeking a business combination and had no operating revenue or business operations. On September 7, 2020, it agreed to merge with Advantage Solutions. The transaction was expected to close in the fourth quarter of 2020; closing remained subject to conditions.

  • Merger consideration to TopCo: 203.75 million shares of Class A common stock, plus 5 million shares subject to vesting and forfeiture conditions.
  • Related private placements: 50 million shares for $500 million from investor subscribers and 20 million shares for $200 million from certain TopCo equityholders; the latter subscription could increase in specified circumstances, including to cover redemptions.
  • Advantage subsidiary ASM obtained a commitment for up to $2.5 billion in senior secured facilities: a $2.1 billion term loan and a $400 million asset-based revolver. Proceeds were intended, among other things, to repay Advantage’s existing debt. Funding was conditional.

Financial results and liquidity

All figures below are for Conyers Park II, not Advantage. The SPAC reported no revenue; its income was non-operating interest earned on cash and trust investments.

  • Third quarter 2020: net loss of $4.980 million, including $4.968 million of general and administrative expense and $34,433 of trust and cash interest income. The comparable three months of 2019 showed net income of $1.163 million, with $1.697 million of interest income and $138,090 of general and administrative expense.
  • Nine months 2020: net loss of approximately $4.061 million, with $1.705 million of interest income and $5.290 million of general and administrative expense. The filing compares this with the period from inception through September 30, 2019, which is not a full nine-month comparable period.
  • Cash flow: net cash used in operating activities was $1.213 million for the nine months ended September 30, 2020. Cash and cash equivalents were $515,000 at quarter-end, down from $951,000 at December 31, 2019.
  • Assets and liabilities: total assets were $454.690 million, including $453.742 million in the Trust Account. Total liabilities were $20.619 million, including $15.750 million of deferred underwriting commissions. The filing reports no outstanding Working Capital Loans.
  • Liquidity: working capital deficit was $3.922 million. Management reported $5.276 million of trust-account interest available for taxes and permitted working-capital withdrawals; subsequent to quarter-end, the company withdrew $1 million for working capital.
  • Debt and margins: the filing does not report operating debt or business margins for Advantage. The proposed Advantage financing is a commitment, not evidence that the facilities were funded.

Material changes, outlook, and risks

  • Quarterly results shifted from net income in 2019 to a substantial loss in 2020, as interest income fell sharply and general and administrative expenses increased. The 2019 comparison covers the three months ended September 30, 2019.
  • Management stated that the SPAC’s liquidity and mandatory liquidation date raised substantial doubt about its ability to continue as a going concern. If it did not complete a business combination by July 22, 2021, it would be required to wind up and redeem public shares under the described terms.
  • Management said COVID-19 could adversely affect the company’s financial position, results, or target search, but the specific impact was not determinable. The financial statements included no related adjustments.
  • The filing added a risk that negative interest rates on trust investments could reduce the public-share redemption amount below $10 per share. Other transaction risks include shareholder redemptions, financing conditions, and failure to complete the merger.
  • The filing reports no legal proceedings and no material changes to previously disclosed risk factors other than the negative-interest-rate risk. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.

Important facts for investors to verify

  1. Confirm the correct filing and issuer: this 10-Q is for Conyers Park II, while the requested company is Advantage Solutions.
  2. Review Advantage’s own financial statements for revenue, profit, cash flow, debt, liquidity, and operating trends; those standalone metrics are not provided here.
  3. Check whether the merger closed, the final consideration and redemption levels, and whether the proposed $700 million private placements and committed debt facilities funded.
  4. Assess the SPAC’s working-capital deficit, going-concern warning, July 22, 2021 liquidation deadline, and subsequent $1 million trust withdrawal.
  5. Note that the filing’s statement of operations reports a nine-month net loss of $4.061354 million, while MD&A gives $4.061355 million; verify the precise amount in the filed financial statements.