Top

Party City Announces Third Quarter 2020 Financial Results; Total Revenue for Fiscal October 2020

11/09/2020

Total Sales of $533.8 million for Third Quarter; Brand comparable sales growth of 8.3%, highest in 9 years  
Net Income of $239.7Million; Adjusted EBITDA of $49.2 million up 187% from Third Quarter 2019
Better Than Expected Halloween and October Performance

ELMSFORD, N.Y., Nov. 09, 2020 (GLOBE NEWSWIRE) -- Party City Holdco Inc. (the “Company” or “PRTY”; NYSE:PRTY) today announced financial results for the third quarter ended September 30, 2020, as well as total revenue for fiscal October 2020.

Brad Weston, Chief Executive Officer, stated, “We are very pleased with our better than expected third quarter performance, highlighted by the continued strength in our core business. Against a pandemic-impacted environment, we delivered $534 million in sales, including an 8.3% brand comparable sales increase, a stabilization in our Wholesale revenues and an almost threefold increase in Adjusted EBITDA over the prior year period.”

“The strides we are making to increase relevancy and elevate our customer experience across channels continue to strengthen our position of authority when it comes to celebrations. In addition, these results reflect the consumers’ desire and willingness to celebrate and are a testament to the agility and discipline with which we are operating the business.” Mr. Weston added.

Third Quarter Summary:

  • Total revenues were $533.8 million, a decrease of 1.2% on a reported basis and a decrease of 1.6% on a constant currency basis.
  • Total Retail sales decreased 1.3% on a reported basis and 1.5% on a constant currency basis, with a brand comparable sales increase of 8.3%, offset primarily by the divestiture of 65 Canadian retail stores in October 2019 as well as the impact of 76 store closures from the company's store optimization program throughout 2019 and 2020. The total number of corporate Party City stores was 739 as of September 30, 2020 compared to 843 a year ago.
  • Brand comparable sales increased 8.3% in the third quarter due to strength in our core business particularly in the balloon, birthday, and entertaining categories.
  • North American digitally enabled sales increased 36.0% including BOPIS, curbside pickup, and delivery.
  • Net third-party Wholesale revenues decreased 0.8% or a decrease of 1.6% in constant currency, with continued improvement in independent and franchise customer trends.  
  • Total gross profit margin increased 250 basis points to 33.1% of net sales. Excluding certain items not indicative of core operating performance, gross profit margin increased 250 basis points to 34.4% of net sales mainly due to occupancy leverage, lower sales promotions, and favorable sales mix.
  • Operating expenses totaled $160.2 million or $25.0 million lower than the third quarter of 2019 (excluding the goodwill impairment charges in 2020 and 2019). Excluding certain items not indicative of core operating performance, operating expenses totaled $152.4 million, or 28.6% of revenue, a reduction of $23.6 million or 400 basis points compared to the third quarter of 2019, primarily due to lower retail operating expenses as a result of the lower store count, lower Wholesale selling expenses and the temporary benefits from cost cutting related to the pandemic.
  • Interest expense was $13.4 million during the third quarter of 2020, compared to $29.4 million during the third quarter of 2019 mainly due to $12.2 million in forgiveness of certain semi-annual interest as a result of the debt exchange refinancing transaction completed in July 2020.
  • Reported GAAP net income was $239.7 million, or $2.24 per share.
  • Adjusted net income was $11.0 million, or $0.10 per diluted share, an improvement of $0.38 per share compared to adjusted net loss of $25.7 million, or $0.28 per share, in the third quarter of 2019. (See “Non-GAAP Financial Information”)
  • Adjusted EBITDA was $49.2 million, versus $17.1 million during the third quarter of 2019. (See “Non-GAAP Financial Information”)

Fiscal October 2020 Update:

For fiscal October 2020 (for the Company’s retail segment, fiscal October 2020 consisted of the five-week period ended October 31, 2020), the Company reported total revenue of $364.3 million, or 15.9% below the same period of last year. Total Retail revenue decreased approximately 16.0%. Brand comparable sales, which include Company-owned Party City stores in the U.S and North American e-commerce operations, decreased 2.9% with Halloween declines partially offset by continued strength in core categories. North American digitally enabled sales, including BOPIS, curbside pickup, and delivery increased 30.2%. The remaining decrease was due to a strategic reduction in store count versus the prior year period. During the month of October 2020, the Company operated 740 total Party City locations vs 778 in the prior year period, and 25 temporary Halloween City stores, compared to 256 in 2019.

Mr. Weston continued, “Our Halloween results were ahead of our expectations, driven by strong results within décor and better than expected sales of costumes, despite the challenges of a pandemic-impacted backdrop. We are very proud of our entire Party City team who delivered an exceptional Halloween experience for our customers, despite the backdrop. We are particularly encouraged by the performance of our core categories into October, which demonstrate the strength and resiliency of our business and the traction we are seeing from our strategic initiatives, both of which bode well for our future performance.”

“We continue to relentlessly focus on our customers as we work to fulfill our mission of creating joy and making it easy to create unforgettable memories. We look forward to building on our progress as we close out the year in a substantially stronger competitive and financial position,” concluded Mr. Weston.

Balance Sheet Highlights:

As of the end of the third quarter on September 30, 2020, the Company had $170.6 million in cash and approximately $178.5 million of availability under the ABL Facility, for total liquidity of $349.1 million.

In addition, the principal balance of debt net of cash on September 30, 2020 is $1,323 million. The principal balance of debt is used for the purpose of all leverage ratio calculations under our debt agreements. The following table shows the bridge from the balance sheet debt to the principal balance of debt:

    Party City
Credit Group
    Anagram
Holdings, LLC
    PCHI Consolidated  
    September   30,
2020
    September   30,
2020
    September   30,
2020
    December   31,
2019
    September   30,
2019
 
Balance sheet debt, net of deferred financing costs   $ 1,349,512     $ 303,062     $ 1,652,574     $ 1,704,317     $ 2,038,613  
Less: Future interest payments     50,172       108,376       158,548       -       -  
Principal balance of debt outstanding, net of deferred financing costs     1,299,340       194,686       1,494,026       1,704,317       2,038,613  
Less: Cash     150,352       20,210       170,562       34,917       34,572  
Principal balance of debt net of cash   $ 1,148,988     $ 174,476     $ 1,323,464     $ 1,669,400     $ 2,004,041  

Outlook:

The Company is providing the following fiscal Q4 2020 outlook. This outlook is subject to potential consumer and marketplace volatility due to the COVID-19 pandemic:

  • Total revenue of $675 to $695 million
  • Brand comparable sales flat to down a low single digit percentage
  • GAAP net income of $30 to $37 million
  • GAAP diluted EPS of $0.28 to $0.35
  • Adjusted EBITDA of $80 to $90 million
  • Adjusted net income of $33 to $40 million
  • Adjusted diluted EPS of $0.31 to $0.37
  • Interest expense of approximately $15 million, with cash interest payments of approximately $9 million
  • Ending corporate store count is expected to be approximately 740 stores
  • Capital expenditures of approximately $13 to $18 million in Q4 2020 and approximately $45 to $50 million for the full year
  • D&A of approximately $19 million in Q4 2020 and approximately $76 million for the full year.
  • Principal balance of debt, net of cash at end of year of approximately $1.3 billion
  • Fiscal 2020 will contain an additional, non-comparable “53rd week” in the fourth quarter. The 53rd week is expected to contribute approximately $35 million in sales, approximately $7 million in adjusted EBITDA, and approximately $0.05 in adjusted diluted EPS.

Conference Call Information :

A conference call to discuss the third quarter 2020 financial results is scheduled for today, November 9, 2020, at 8:00 a.m. Eastern Time, and the Company has posted certain supplemental presentation materials to its investor relations website. Investors and analysts interested in participating in the call are invited to dial 866-270-1533 (U.S. domestic) or 412-317-0797 (international) approximately 10 minutes prior to the start of the call. The conference call will also be webcast at http://investor.partycity.com/. To listen to the live call, please go to the website at least 15 minutes early to register and download any necessary audio software. The webcast will be accessible for one year after the call.

Website Information

We routinely post important information for investors on the Investor Relations section of our website, http://investor.partycity.com/. We intend to use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document.

Non-GAAP Information

This press release includes non-GAAP measures including Adjusted EBITDA and Adjusted Net Income/Loss and Adjusted Earnings per Share. We present these non-GAAP financial measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by eliminating items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA: (i) as a factor in determining incentive compensation, (ii) to evaluate the effectiveness of our business strategies and (iii) because our credit facilities use Adjusted EBITDA to measure compliance with certain covenants. The Company has reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in tables accompanying this release. We also evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We calculate constant currency percentages by converting our prior-period local currency financial results using the current period exchange rates and comparing these adjusted amounts to our current period reported results. We also provide free cash flow, defined as Adjusted EBITDA less capital expenditures, and net debt leverage, which is calculated by adding Loans and Notes Payable, Current Portion of Long Term Obligations and Long Term Obligations, Excluding Current Portion, subtracting Cash and Cash Equivalents and dividing by Adjusted EBITDA for the trailing twelve month period. Adjusted Earnings per Share is calculated by dividing Adjusted Net Income by the Weighted Average Number of Common Shares-Diluted. We believe providing these non-GAAP measures provides valuable supplemental information regarding our results of operations and leverage, consistent with how we evaluate our performance. In evaluating these non-GAAP financial measures, investors should be aware that in the future the Company may incur expenses or be involved in transactions that are the same as or similar to some of the adjustments in this presentation. The Company's presentation of non-GAAP financial measures should not be construed to imply that its future results will be unaffected by any such adjustments. The Company has provided this information as a means to evaluate the results of its core operations. Other companies in the Company's industry may calculate these items differently than it does. Each of these measures is not a measure of performance under GAAP and should not be considered as a substitute for the most directly comparable financial measures prepared in accordance with GAAP. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results as reported under GAAP.

Forward-Looking Statements

This press release and the commentary in the conference call to be held today each contains forward-looking statements. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance, including Party City’s expectations regarding its ability to maximize the potential of its plans to open and close stores, plans to invest capital expenditures, and anticipated interest expense and depreciation and amortization expense for fiscal year 2020. The forward-looking statements contained in this press release are based on management's good-faith belief and reasonable judgment based on current information, and these statements are qualified by important risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those forecasted or indicated by such forward-looking statements. These risks and uncertainties include: potential risks and uncertainties relating to the ultimate geographic spread of COVID-19; the severity of the COVID-19 pandemic; the duration of the COVID-19 pandemic; actions that may be taken by governmental authorities to contain the COVID-19 pandemic or to treat its impact; the potential negative impacts of COVID-19 on the global economy and foreign sourcing; the impacts of COVID-19 on our financial condition and business operation; our ability to compete effectively in a competitive industry; fluctuations in commodity prices; our ability to appropriately respond to changing merchandise trends and consumer preferences; successful implementation of our store growth strategy; decreases in our Halloween sales; the impact of helium shortages on our financial performance; disruption to the transportation system or increases in transportation costs; product recalls or product liability; economic slowdown affecting consumer spending and general economic conditions, including as a result of the COVID-19 pandemic; loss or actions of third party vendors and loss of the right to use licensed material; disruptions at our manufacturing facilities; and the additional risks and uncertainties set forth in “Risk Factors” in Party City’s Annual Report on Form 10-K for the year ended December 31, 2019 and in subsequent reports filed with or furnished to the Securities and Exchange Commission. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, outlook, guidance, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward looking statements. Except as may be required by any applicable laws, Party City assumes no obligation to publicly update or revise such forward-looking statements, which are made as of the date hereof or the earlier date specified herein, whether as a result of new information, future developments or otherwise.

About Party City

Party City Holdco Inc. is the leading party goods company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party goods globally by revenue. The Company is a popular one-stop shopping destination for party supplies, balloons, and costumes. In addition to being a great retail brand, the Company is a global, world-class organization that combines state-of-the-art manufacturing and sourcing operations, and sophisticated wholesale operations complemented by a multi-channel retailing strategy and e-commerce retail operations. The Company is the leading player in its category, vertically integrated and unique in its breadth and depth. The Company designs, manufactures, sources and distributes party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world. The Company’s retail operations include approximately 830 specialty retail party supply stores (including franchise stores) throughout North America operating under the names Party City and Halloween City, and e-commerce websites, principally through the domain name PartyCity.com.



PARTY CITY HOLDCO INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data , unaudited )

    September   30,
2020
    December   31,
2019
 
    (Note 2)
(Unaudited)
    (Note 2)  
ASSETS                
Current assets:                
Cash and cash equivalents   $ 170,562     $ 34,917  
Accounts receivable, net     149,825       149,109  
Inventories, net     630,357       658,419  
Prepaid expenses and other current assets     112,038       51,685  
Total current assets     1,062,782       894,130  
Property, plant and equipment, net     206,447       243,572  
Operating lease asset     741,524       802,634  
Goodwill     669,564       1,072,330  
Trade names     383,666       530,320  
Other intangible assets, net     34,505       45,060  
Other assets, net     9,521       7,273  
Total assets   $ 3,108,009     $ 3,595,319  
LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS EQUITY                
Current liabilities:                
Loans and notes payable   $ 303,894     $ 128,806  
Accounts payable     179,938       152,300  
Accrued expenses     202,636       150,921  
Current portion of operating lease liability     194,476       155,471  
Income taxes payable           35,905  
Current portion of long-term obligations     14,342       71,524  
Total current liabilities     895,286       694,927  
Long-term obligations, excluding current portion     1,334,338       1,503,987  
Long-term portion of operating lease liability     677,183       720,735  
Deferred income tax liabilities, net     49,508       126,081  
Other long-term liabilities     15,559       16,517  
Total liabilities     2,971,874       3,062,247  
Redeemable securities           3,351  
Commitments and contingencies                
Stockholders’ equity:                
Common stock (110,573,555 and 94,461,576 shares outstanding and 121,848,074 and 121,662,540 shares issued at September 30, 2020 and December 31, 2019, respectively)     1,371       1,211  
Additional paid-in capital     970,145       928,573  
Accumulated deficit     (469,040 )     (37,219 )
Accumulated other comprehensive loss     (38,907 )     (35,734 )
Total Party City Holdco Inc. stockholders’ equity before common stock held in treasury     463,569       856,831  
Less: Common stock held in treasury, at cost (11,274,519 and 27,200,964 shares at September 30, 2020 and December 31, 2019, respectively)     (327,170 )     (327,086 )
Total Party City Holdco Inc. stockholders’ equity     136,399       529,745  
Noncontrolling interests     (264 )     (24 )
          Total stockholders’ equity     136,135       529,721  
     Total liabilities, redeemable securities and stockholders’ equity   $ 3,108,009     $ 3,595,319  
 
 

PARTY CITY HOLDCO INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except share and per share data, unaudited)

    Three Months Ended
September
  30,
    Nine Months Ended
September
  30,
 
    2020     2019     2020     2019  
Revenues:                                
Net sales   $ 532,053     $ 538,345     $ 1,198,160     $ 1,611,149  
Royalties and franchise fees     1,722       1,886       4,349       6,089  
Total revenues     533,775       540,231       1,202,509       1,617,238  
Cost of sales     355,923       373,413       890,587       1,065,511  
Wholesale selling expenses     11,950       16,084       37,115       50,929  
Retail operating expenses     97,100       111,595       250,502       302,756  
Franchise expenses     2,795       3,274       9,225       9,813  
General and administrative expenses     42,191       43,062       162,118       126,497  
Art and development costs     4,257       5,927       13,095       17,568  
Development stage expenses           2,728       2,932       7,966  
Gain on sale/leaseback transaction                       (58,381 )
Store impairment and restructuring charges     1,926       2,574       20,818       25,817  
Goodwill, intangibles and long-lived assets impairment     44,732       259,100       581,380       259,100  
Total expenses     560,874       817,757       1,967,772       1,807,576  
Loss from operations     (27,099 )     (277,526 )     (765,263 )     (190,338 )
Interest expense, net     13,422       29,424       63,954       88,857  
Other (income) expense, net     (2,873 )     2,047       4,287       6,643  
(Gain) on debt refinancing     (273,149 )           (273,149 )      
Income (loss) before income taxes     235,501       (308,997 )     (560,355 )     (285,838 )
Income tax (benefit)     (4,164 )     (27,252 )     (128,293 )     (21,809 )
Net income (loss)     239,665       (281,745 )     (432,062 )     (264,029 )
Less: Net (loss) attributable to noncontrolling interests     (42 )     (212 )     (241 )     (352 )
Net income (loss) attributable to common shareholders of Party City Holdco Inc.   $ 239,707     $ (281,533 )   $ (431,821 )   $ (263,677 )
Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Basic   $ 2.25     $ (3.02 )   $ (4.41 )   $ (2.83 )
Net income (loss) per share attributable to common shareholders of Party City Holdco Inc.–Diluted   $ 2.24     $ (3.02 )   $ (4.41 )   $ (2.83 )
Weighted-average number of common shares-Basic     106,709,307       93,346,448       97,872,174       93,271,392  
Weighted-average number of common shares-Diluted     106,875,631       93,346,448       97,872,174       93,271,392  
Dividends declared per share   $     $     $     $  
Comprehensive income (loss)   $ 244,607     $ (288,573 )   $ (435,235 )   $ (266,883 )
Less: Comprehensive (loss) attributable to noncontrolling interests     (42 )     (213 )     (241 )     (364 )
Comprehensive income (loss) attributable to common shareholders of Party City Holdco Inc.   $ 244,649     $ (288,360 )   $ (434,994 )   $ (266,519 )
 
 

PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA
(In thousands , unaudited )

    Three Months Ended
September
  30,
    Nine Months Ended
September
  30,
 
    2020     2019     2020     2019  
(Dollars in thousands)                                
Net (loss) income   $ 239,665     $ (281,745 )   $ (432,062 )   $ (264,029 )
Interest expense, net     13,422       29,424       63,954       88,857  
Income tax (benefit)     (4,164 )     (27,252 )     (128,293 )     (21,809 )
Depreciation and amortization     17,278       19,155       57,796       62,380  
EBITDA     266,201       (260,418 )     (438,605 )     (134,601 )
Non-cash purchase accounting adjustments                       2,757  
Store impairment and restructuring charges (a)     6,763       8,694       36,285       54,960  
Other restructuring, retention and severance (b)     2,957       (73 )     11,701       5,248  
Goodwill, intangibles and long-lived assets impairment (c)     44,732       259,100       581,380       259,100  
Deferred rent (d)     254       446       (2,618 )     (1,042 )
Closed store expense (e)     1,247       2,326       2,882       3,424  
Foreign currency losses/(gains), net     (3,312 )     646       955       486  
Stock option expense – time – based (f)     111       409       671       1,150  
Stock option expense – performance – based (n)                 7,847        
Restricted stock unit and restricted cash awards expense – performance-based     510             510        
Non-employee equity-based compensation (g)           128       1,033       386  
Undistributed income (loss) in equity method investments     (59 )     7       356       (195 )
Corporate development expenses (h)     581       4,588       6,193       11,782  
Restricted stock units – time-based (i)     429       610       1,568       1,543  
Restricted stock unit expense – performance-based (m)           560             1,036  
Non-recurring legal settlements/costs     661       194       7,170       1,795  
(Gain) on debt refinancing (p)     (273,149 )           (273,149 )      
Gain on sale/leaseback transaction (o)                       (58,381 )
COVID - 19 (l)     679             71,059        
Other     546       (75 )     3,034       217  
Adjusted EBITDA   $ 49,151     $ 17,142     $ 18,272     $ 149,665  
 
 

PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)

          Three Months Ended September 30, 2020 EBITDA Adjustments        
    September 30, 2020
GAAP
Basis (as
reported)
    Goodwill, intangibles and long-lived assets impairment (c)     Store
impairment
and
restructuring
charges (a)
    Gain on debt refinancing (p)   Corporate
development
expenses (h)
    Legal     Stock
Option

Expense/Non-
Employee  
Equity
Compensation/
Restricted
stock units
time-
based

(f)(g)( i )(n)
    Deferred
Rent
(d)
    Other
restructuring,
retention
and

severance
(b)
    Closed
store
expense
(e)
    COVID-
19
(l)
    Foreign
currency
losses
  Other     September 30,
2020
Non-GAAP
basis
Revenues:                                                                                                          
Net sales   $ 532,053                                                                                                 $ 532,053
Royalties and franchise fees     1,722                                                                                                   1,722
Total revenues     533,775                                                                                                   533,775
Cost of sales     355,923               (4,837 )                                   (80 )                     (1,266 )           (469 )     349,271
Wholesale selling expenses     11,950                                                                                                   11,950
Retail operating expenses     97,100                                                     (224 )             (1,225 )     (1,745 )                   93,906
Franchise expenses     2,795                                                                                                   2,795
General and administrative expenses     42,191                             (370 )     (661 )     (1,050 )     50       (2,957 )     (22 )     2,332                     39,513
Art and development costs     4,257                                                                                                   4,257
Store impairment and restructuring charges     1,926               (1,926 )                                                                                
Goodwill, intangibles and long-lived assets impairment     44,732       (44,732 )                                                                                        
Total expenses     560,874       (44,732 )     (6,763 )         (370 )     (661 )     (1,050 )     (254 )     (2,957 )     (1,247 )     (679 )         (469 )     501,692
(Loss) from operations     (27,099 )                                                                                                 32,083
Interest expense, net     13,422                                                                                                   13,422
Other (income) expense, net     (2,873 )                           (211 )                                                     3,312     (18 )     210
(Gain) on debt refinancing     (273,149 )                     273,149                                                                          
Income (loss) before income taxes     235,501                                                                                                   18,451
Interest expense, net     13,422                                                                                                   13,422
Depreciation and amortization     17,278                                                                                                   17,278
EBITDA     266,201                                                                                                   49,151
Adjustments to EBITDA     (217,050 )     (44,732 )     (6,763 )     273,149     (581 )     (661 )     (1,050 )     (254 )     (2,957 )     (1,247 )     (679 )     3,312     (487 )    
Adjusted EBITDA   $ 49,151     $ (44,732 )   $ (6,763 )   $ 273,149   $ (581 )   $ (661 )   $ (1,050 )   $ (254 )   $ (2,957 )   $ (1,247 )   $ (679 )   $ 3,312   $ (487 )   $ 49,151
 
 

PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)

            Three Months Ended September 30, 2019 EBITDA Adjustments        
    September 30,
2019

GAAP
Basis
(as

reported)
    Goodwill, intangibles and
long-
lived assets impairment (c)
    Store
impairment
and
restructuring
charges
(a)
    Gain
on sale/
leaseback
transaction

(o)
  Corporate
development
expenses
(h)
    Legal     Stock
Option

Expense/Non-
Employee  
Equity
Compensation/
Restricted
stock
units

time-
based

(f)(g)( i )(m)
    Deferred
Rent
(d)
    Other
restructuring,
retention
and

severance
(b)
  Closed
store
expense
(e)
    Foreign
currency
gains
    Other   September 30,
2019
Non-GAAP
basis
 
Revenues:                                                                                                  
Net sales   $ 538,345                                                                                       $ 538,345  
Royalties and franchise fees     1,886                                                                                         1,886  
Total revenues     540,231                                                                                         540,231  
Cost of sales     373,413               (6,120 )                                   (656 )                                 366,637  
Wholesale selling expenses     16,084                                                                                         16,084  
Retail operating expenses     111,595                                                                   (2,240 )                   109,355  
Franchise expenses     3,274                                                                                         3,274  
General and administrative expenses     43,062                                     (194 )     (1,707 )     210       73     (86 )                   41,358  
Art and development costs     5,927                                                                                         5,927  
Development stage expenses     2,728                             (2,728 )                                                          
Store impairment and restructuring charges     2,574               (2,574 )                                                                        
Goodwill, intangibles and long-lived assets impairment     259,100       (259,100 )                                                                                
Total expenses     817,757       (259,100 )     (8,694 )         (2,728 )     (194 )     (1,707 )     (446 )     73     (2,326 )               542,635  
Income from operations     (277,526 )                                                                                       (2,404 )
Interest expense, net     29,424                                                                                         29,424  
Other expense, net     2,047                             (1,860 )                                           (646 )     68     (391 )
Income before income taxes     (308,997 )                                                                                       (31,437 )
Interest expense, net     29,424                                                                                         29,424  
Depreciation and amortization     19,155                                                                                         19,155  
EBITDA     (260,418 )                                                                                       17,142  
Adjustments to EBITDA     277,560       (259,100 )     (8,694 )         (4,588 )     (194 )     (1,707 )     (446 )     73     (2,326 )     (646 )     68      
Adjusted EBITDA   $ 17,142     $ (259,100 )   $ (8,694 )   $   $ (4,588 )   $ (194 )   $ (1,707 )   $ (446 )   $ 73   $ (2,326 )   $ (646 )   $ 68   $ 17,142  
 
 

PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)

            Nine Months Ended September 30, 2020 EBITDA Adjustments          
    September 30,
2020

GAAP
Basis
(as

reported)
    Goodwill, intangibles and
long-
lived assets impairment (c)
    Store
impairment
and
restructuring
charges
(a)
    Gain on debt refinancing (p)   Corporate
development
expenses
(h)
    Legal     Stock
Option

Expense/Non-
Employee  
Equity
Compensation/
Restricted
stock
units

(f)(g)( i )(n)
    Deferred
Rent
(d)
    Other
restructuring,
retention
and

severance
(b)
    Closed
store
expense (e)
    COVID-
19
(l)
    Foreign
currency
losses
    Other     September 30,
2020
Non-
GAAP

basis
 
Revenues:                                                                                                              
Net sales   $ 1,198,160                                                                                                   $ 1,198,160  
Royalties and franchise fees     4,349                                                                                                     4,349  
Total revenues     1,202,509                                                                                                     1,202,509  
Cost of sales     890,587               (15,467 )                                   (214 )     (4,437 )             (42,446 )             (898 )     827,125  
Wholesale selling expenses     37,115                             (1,840 )                                             (623 )                     34,652  
Retail operating expenses     250,502                                                     2,685               (2,733 )     (16,312 )                     234,142  
Franchise expenses     9,225                                                                             (672 )                     8,553  
General and administrative expenses     162,118                             (570 )     (7,170 )     (10,596 )     147       (7,264 )     (149 )     (11,006 )                     125,510  
Art and development costs     13,095                                                                                                     13,095  
Development stage expenses     2,932                             (2,932 )                                                                      
(Gain) on sale/leaseback transaction                                                                                                          
Store impairment and restructuring charges     20,818               (20,818 )                                                                                    
Goodwill, intangibles and long-lived assets impairment     581,380       (581,380 )                                                                                            
Total expense     1,967,772       (581,380 )     (36,285 )         (5,342 )     (7,170 )     (10,596 )     2,618       (11,701 )     (2,882 )     (71,059 )           (898 )     1,243,077  
(Loss) from operations     (765,263 )                                                                                                   (40,568 )
Interest expense, net     63,954                                                                                                     63,954  
Other expense, net     4,287                             (851 )             (1,033 )                                     (955 )     (2,492 )     (1,044 )
(Gain) on debt refinancing     (273,149 )                     273,149                                                                              
(Loss) before income taxes     (560,355 )                                                                                                   (103,478 )
Interest expense, net     63,954                                                                                                     63,954  
Depreciation and amortization     57,796                                                                                                     57,796  
EBITDA     (438,605 )                                                                                                   18,272  
Adjustments to EBITDA     456,877       (581,380 )     (36,285 )     273,149     (6,193 )     (7,170 )     (11,629 )     2,618       (11,701 )     (2,882 )     (71,059 )     (955 )     (3,390 )      
Adjusted EBITDA   $ 18,272     $ (581,380 )   $ (36,285 )   $ 273,149   $ (6,193 )   $ (7,170 )   $ (11,629 )   $ 2,618     $ (11,701 )   $ (2,882 )   $ (71,059 )   $ (955 )   $ (3,390 )   $ 18,272  
 
 

PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)

            Nine Months Ended September 30, 2019 EBITDA Adjustments          
    September 30,
2019

GAAP
Basis (as
reported)
    Goodwill, intangibles
and long-
lived
assets impairment
(c)
    Store
impairment
and
restructuring
charges
(a)
    Gain on sale
/leaseback transaction

(o)
  Corporate
development
expenses
(h)
    Legal     Stock
Option

Expense/Non-
Employee  
Equity
Compensation/
Restricted
stock
units

(f)(g)( i )(m)
    Deferred
Rent
(d)
  Other
restructuring,
retention
and

severance
(b)
    Closed
store
expense (e)
    Non-Cash
Purchase
Accounting
Adjustments
    Foreign
currency
gains
    Other     September 30,
2019
Non-
GAAP

basis
 
Revenues:                                                                                                            
Net sales   $ 1,611,149                                                                                                 $ 1,611,149  
Royalties and franchise fees     6,089                                                                                                   6,089  
Total revenues     1,617,238                                                                                                   1,617,238  
Cost of sales     1,065,511               (29,143 )                                   831                                             1,037,199  
Wholesale selling expenses     50,929                                                                                                   50,929  
Retail operating expenses     302,756                                                           (31 )     (3,111 )                             299,614  
Franchise expenses     9,813                                                                                                   9,813  
General and administrative expenses     126,497                                     (1,795 )     (4,115 )     211     (5,217 )     (313 )                             115,268  
Art and development costs     17,568                                                                                                   17,568  
Development stage expenses     7,966                             (7,965 )                                                                   1  
Gain on sale/leaseback transaction     (58,381 )                     58,381                                                                            
Store impairment and restructuring charges     25,817               (25,817 )                                                                                  
Goodwill, intangibles and long-lived assets impairment     259,100       (259,100 )                                                                                          
Total expenses     1,807,576       (259,100 )     (54,960 )     58,381     (7,965 )     (1,795 )     (4,115 )     1,042     (5,248 )     (3,424 )                       1,530,392  
Income from operations     (190,338 )                                                                                                 86,846  
Interest expense, net     88,857                                                                                                   88,857  
Other expense, net     6,643                             (3,817 )                                           (2,757 )     (486 )     (22 )     (439 )
(Loss) before income taxes     (285,838 )                                                                                                 (1,572 )
Interest expense, net     88,857                                                                                                   88,857  
Depreciation and amortization     62,380                                                                                                   62,380  
EBITDA     (134,601 )                                                                                                 149,665  
Adjustments to EBITDA     284,266       (259,100 )     (54,960 )     58,381     (11,782 )     (1,795 )     (4,115 )     1,042     (5,248 )     (3,424 )     (2,757 )     (486 )     (22 )      
Adjusted EBITDA   $ 149,665     $ (259,100 )   $ (54,960 )   $ 58,381   $ (11,782 )   $ (1,795 )   $ (4,115 )   $ 1,042   $ (5,248 )   $ (3,424 )   $ (2,757 )   $ (486 )   $ (22 )   $ 149,665  
 


(a)
  During the three and nine months ended September 30, 2019, the Company initiated a store optimization program under which it identified 55 stores for closure, out of which 35 stores were closed in 2019 and 20 stores were closed in January 2020. In addition, 21 stores identified for closure in the first quarter of 2020 were closed in the third quarter. In conjunction with the program, during the nine months ended September 30, 2020, the Company recorded the following charges: inventory reserves: $12,880, operating lease asset impairment: $14,530 (including $6,051 related primarily to its active stores that were closed in earlier in 2020 due to COVID-19), plant and equipment impairment: $2,065 and labor and other costs related to closing the stores: $4,223. During the first nine months ended September 30, 2019, the Company recorded the following charges related to the store optimization program: inventory reserves: $21,285, operating lease asset impairment: $14,149, property, plant and equipment impairment: $4,680, labor and other costs relates to closing stores: $6,327 and severance: $661. See Note 3 – Store Impairment and Restructuring Charges in Item 1 for further discussion. Additionally, during the process of liquidating the inventory in such stores, the Company lost margin of $5,230.
(b)

  Amounts expensed during the first nine months of 2020 principally relate to severance due to organizational changes. Amounts expensed during 2019 principally relate to executive severance and the write-off of inventory for a section of the Company’s Party City stores that were restructured.
(c)

  As a result of a sustained decline in market capitalization and reduced fair value of certain intangibles and long-lived assets, the Company recognized non-cash pre-tax goodwill and intangibles impairment charges for the nine months ended September 30, 2020 totaling $581.4.
(d)

  The “deferred rent” adjustment reflects the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay for such items. During the first quarter of 2019, the Company adopted ASC 842. Under the standard, the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay for such items is now incorporated in the Company’s operating lease asset.
(e)   Charges incurred related to closing and relocating stores in the ordinary course of business.
(f)   Represents non-cash charges related to stock options – time-based and performance-based.
(g)   The acquisition of Ampology’s interest in Kazzam, LLC in an equity transaction. See Note 19 – Kazzam, LLC in Item 1 for further discussion.
(h)   Primarily represents costs for Kazzam (see Note 19 – Kazzam, LLC in Item 1 for further discussion) and third-party costs related to acquisitions (principally legal and diligence expenses).
(i)   Non-cash charges for restricted stock units that vest based on service conditions.
(j)

  During February 2018, the Company amended the Term Loan Credit Agreement. In conjunction with the amendment, the Company wrote-off capitalized deferred financing costs, original issue discounts and call premiums. The amounts are included in “Amortization of deferred financing costs and original issuance discounts” in the adjusted net income table above.
(k)

  Represents income tax expense/benefit after excluding the specific tax impacts for each of the pre-tax adjustments. The tax impacts for each of the adjustments were determined by applying to the pre-tax adjustments the effective income tax rates for the specific legal entities in which the adjustments were recorded.
(l)   Represents COVID-19 expenses for employees on temporary furlough for whom the Company provides health benefits; non-payroll expenses including advertising, occupancy and other store expenses.
(m)   Non-cash charges for restricted stock units that vest based on performance conditions.
(n)

  Represents non-cash charges related to stock options that vest based on performance conditions. For the three and nine months ended September 30, 2020, this includes a one-time compensation expense of $7,847 that resulted from THL not achieving specified investment returns. See Note 10, Capital Stock of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q.
(o)

  During June 2019, the Company reported a $58,381 gain from the sale and leaseback of its main distribution center in Chester, New York and its metallic balloons manufacturing facility in Eden Prairie, Minnesota. The aggregate sale price for the three properties was $128,000. Simultaneous with the sale, the Company entered into twenty-year leases for each of the facilities.
(p)

  As described in Note 16 – Current and Long-Term Obligations of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q, the Company recognized a gain of $273,149 on debt refinancing transactions.
     
     

PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED NET INCOME
(In thousands, except share and per share data , unaudited )

    Three Months Ended September   30,     Nine Months Ended September   30,  
    2020     2019     2020     2019  
(Dollars in thousands, except per share amounts)                                
Income (loss) before income taxes   $ 235,501     $ (308,997 )   $ (560,355 )   $ (285,838 )
Intangible asset amortization     2,899       3,553       8,444       10,528  
Non-cash purchase accounting adjustments           424             4,200  
Amortization of deferred financing costs and original issuance discounts (j)     875       1,222       3,276       3,511  
Store impairment and restructuring charges (a)     1,321       8,694       29,475       54,960  
Other restructuring charges (b)     2,622       (263 )     10,139       2,822  
Goodwill, intangibles and long-lived assets impairment (c)     44,732       259,100       581,380       259,100  
Non-employee equity-based compensation (g)           128       1,033       386  
Refinancing charges (j)                       36  
Non-recurring legal settlements/costs     605             7,026        
Stock option expense – time – based (f)     110       409       671       1,150  
Stock option expense – performance – based (n)                 7,847        
Gain on sale/leaseback transaction (o)                       (58,381 )
(Gain) on debt refinancing (p)     (273,149 )           (273,149 )      
Restricted stock unit expense – performance-based (m)           560             1,036  
COVID - 19 (l)     733             71,113        
Adjusted income (loss) before income taxes     16,249       (35,170 )     (113,100 )     (6,490 )
Adjusted income tax (benefit) expense (k)     5,234       (9,459 )     (36,416 )     (2,117 )
Adjusted net (loss) income   $ 11,015     $ (25,711 )   $ (76,684 )   $ (4,373 )
Adjusted net (loss) income per common share diluted   $ 0.10     $ (0.28 )   $ (0.78 )   $ (0.05 )
Weighted-average number of common shares-diluted     106,875,631       93,346,448       97,872,174       93,271,392  
 


(a)





  During the three and nine months ended September 30, 2019, the Company initiated a store optimization program under which it identified 55 stores for closure, out of which 35 stores were closed in 2019 and 20 stores were closed in January 2020. In addition, 21 stores identified for closure in the first quarter of 2020 were closed in the third quarter. In conjunction with the program, during the nine months ended September 30, 2020, the Company recorded the following charges: inventory reserves: $12,880, operating lease asset impairment: $14,530 (including $6,051 related primarily to its active stores that were closed in earlier in 2020 due to COVID-19), plant and equipment impairment: $2,065 and labor and other costs related to closing the stores: $4,223. During the first nine months ended September 30, 2019, the Company recorded the following charges related to the store optimization program: inventory reserves: $21,285, operating lease asset impairment: $14,149, property, plant and equipment impairment: $4,680, labor and other costs relates to closing stores: $6,327 and severance: $661. See Note 3 – Store Impairment and Restructuring Charges in Item 1 for further discussion. Additionally, during the process of liquidating the inventory in such stores, the Company lost margin of $5,230.
(b)

  Amounts expensed during the first nine months of 2020 principally relate to severance due to organizational changes. Amounts expensed during 2019 principally relate to executive severance and the write-off of inventory for a section of the Company’s Party City stores that were restructured.
(c)

  As a result of a sustained decline in market capitalization and reduced fair value of certain intangibles and long-lived assets, the Company recognized non-cash pre-tax goodwill and intangibles impairment charges for the nine months ended September 30, 2020 totaling $581.4.
(d)

  The “deferred rent” adjustment reflects the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay for such items. During the first quarter of 2019, the Company adopted ASC 842. Under the standard, the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay for such items is now incorporated in the Company’s operating lease asset.
(e)   Charges incurred related to closing and relocating stores in the ordinary course of business.
(f)   Represents non-cash charges related to stock options – time-based and performance-based.
(g)   The acquisition of Ampology’s interest in Kazzam, LLC in an equity transaction. See Note 19 – Kazzam, LLC in Item 1 for further discussion.
(h)   Primarily represents costs for Kazzam (see Note 19 – Kazzam, LLC in Item 1 for further discussion) and third-party costs related to acquisitions (principally legal and diligence expenses).
(i)   Non-cash charges for restricted stock units that vest based on service conditions.
(j)

  During February 2018, the Company amended the Term Loan Credit Agreement. In conjunction with the amendment, the Company wrote-off capitalized deferred financing costs, original issue discounts and call premiums. The amounts are included in “Amortization of deferred financing costs and original issuance discounts” in the adjusted net income table above.
(k)

  Represents income tax expense/benefit after excluding the specific tax impacts for each of the pre-tax adjustments. The tax impacts for each of the adjustments were determined by applying to the pre-tax adjustments the effective income tax rates for the specific legal entities in which the adjustments were recorded.
(l)   Represents COVID-19 expenses for employees on temporary furlough for whom the Company provides health benefits; non-payroll expenses including advertising, occupancy and other store expenses.
(m)   Non-cash charges for restricted stock units that vest based on performance conditions.
(n)

  Represents non-cash charges related to stock options that vest based on performance conditions. For the three and nine months ended September 30, 2020, this includes a one-time compensation expense of $7,847 that resulted from THL not achieving specified investment returns. See Note 10, Capital Stock of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q.
(o)

  During June 2019, the Company reported a $58,381 gain from the sale and leaseback of its main distribution center in Chester, New York and its metallic balloons manufacturing facility in Eden Prairie, Minnesota. The aggregate sale price for the three properties was $128,000. Simultaneous with the sale, the Company entered into twenty-year leases for each of the facilities.
(p)

  As described in Note 16 – Current and Long-Term Obligations of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q, the Company recognized a gain of $273,149 on debt refinancing transactions.
     
     


PARTY CITY HOLDCO INC.
SEGMENT INFORMATION
(In thousands, except percentages , unaudited )

    Three Months Ended September   30,
    2020
  2019
    Dollars in
Thousands
    Percentage of
Total Revenues
  Dollars in
Thousands
    Percentage of
Total Revenues
Net Sales:                                    
Wholesale   $ 346,621       64.9   %   $ 383,425       71.0   %
Eliminations     (179,049 )     (33.5 )       (214,547 )     (39.7 )  
Net wholesale     167,572       31.4         168,878       31.3    
Retail     364,481       68.3         369,467       68.4    
Total net sales     532,053       99.7         538,345       99.7    
Royalties and franchise fees     1,722       0.3         1,886       0.3    
Total revenues   $ 533,775       100.0   %   $ 540,231       100.0   %


 
    Nine Months Ended September   30,
    2020
2019
    Dollars in
Thousands
    Percentage of
Total Revenues
  Dollars in
Thousands
    Percentage of
Total Revenues
Net Sales:                                    
Wholesale   $ 692,715       57.6   %   $ 962,793       59.5   %
Eliminations     (345,167 )     (28.7 )       (522,421 )     (32.3 )  
Net wholesale     347,548       28.9         440,372       27.2    
Retail     850,612       70.7         1,170,777       72.4    
Total net sales     1,198,160       99.6         1,611,149       99.6    
Royalties and franchise fees     4,349       0.4         6,089       0.4    
Total revenues   $ 1,202,509       100.0   %   $ 1,617,238       100.0   %


     
    Three Months Ended September   30,
    2020
  2019
    Dollars in
Thousands
    Percentage
of   Net Sales
      Dollars in
Thousands
    Percentage
of   Net Sales
   
Retail   $ 133,817       36.7   %   $ 128,692       34.8   %
Wholesale     42,313       25.3         36,240       21.5    
Total Gross Profit   $ 176,130       33.1   %   $ 164,932       30.6   %


 
    Nine Months Ended September   30,
    2020
2019
    Dollars in
Thousands
    Percentage
of   Net Sales
      Dollars in
Thousands
    Percentage
of   Net Sales
   
Retail   $ 257,035       30.2   %   $ 436,761       37.3   %
Wholesale     50,538       14.5         108,877       24.7    
Total Gross Profit   $ 307,573       25.7   %   $ 545,638       33.9   %
 
 

PARTY CITY HOLDCO INC.
OPERATING METRICS

    Three Months Ended September   30,     LTM  
    2020     2019     2020  
                         
Store Count                        
Corporate Stores:                        
Beginning of period     757       865       843  
New stores opened     1             2  
Acquired     2       3       2  
Closed     (21 )     (25 )     (108 )
End of period     739       843       739  
Franchise Stores                        
Beginning of period     96       98       98  
New stores opened                  
Sold to Party City     (1 )           (2 )
Closed     (5 )           (6 )
End of period     90       98       90  
Grand Total     829       941       829  


 
    Three Months Ended September   30,
  Nine Months Ended September   30,
    2020
  2019   2020
  2019
                                 
Wholesale Share of Shelf (a)   81.1%   78.3%   81.4%   78.0%
Manufacturing Share of Shelf (b)   29.6%   25.4%   30.2%   26.7%
                                 
                                 
                                 
    Three Months Ended September   30,
  Nine Months Ended September   30,
    2020
  2019   2020
  2019
                                 
Brand comparable sales (c)   8.3%   -2.6%   -21.8%   -2.0%
         


(a)   Wholesale share of shelf represents the percentage of our retail product cost of sales supplied by our wholesale operations.
(b)   Manufacturing share of shelf represents the percentage of our retail product cost of sales manufactured by the company.
(c)   Party city brand comparable sales include North American e-commerce sales.
     

 


Contacts:

Investor Relations
ICR
Farah Soi and Rachel Schacter
203-682-8200
InvestorRelations@partycity.com

Media Relations
ICR
Brittany Fraser
203-682-8200
PartyCityPR@partycity.com

Source: Party City Holdco Inc.

PartyCityLogoResize.jpg

Source: Party City Holdco Inc.