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Party City Reports First Quarter 2022 Results and Updates 2022 Business Outlook

05/09/2022

Total Net Sales of $433 million; Comparable Sales increased 2.1% versus prior year

GAAP Net Loss of $26.9 million; Adjusted EBITDA of $4.6 million

ELMSFORD, N.Y., May 09, 2022 (GLOBE NEWSWIRE) -- Party City Holdco Inc. (the “Company” or “PRTY”; NYSE:PRTY) today announced financial results for the quarter ended March 31, 2022.

Brad Weston, Chief Executive Officer of Party City, stated, “We are pleased to deliver another quarter of topline growth with a sales increase of 1.4% and brand comp sales growth of 2.1%, despite a difficult consumer backdrop with the Omicron variant earlier in the quarter. As expected, our bottom line results were impacted by elevated costs, including greater than anticipated freight and commodity cost pressures that ramped later in the quarter. Amidst this choppy macro environment, our teams are doing a good job executing against our strategic priorities of ongoing enhancements to customer engagement as well as digital, IT and supply chain, in support of our purpose to inspire joy and make it easy to create unforgettable memories.”

Mr. Weston added, “As we look to the remainder of 2022, we expect supply chain and inflationary headwinds to continue, which is reflected in our updated outlook. While we navigate this near-term turbulence in costs, we are being very thoughtful with our mitigating actions on the pricing front, along with delivering an improved customer experience. To that end, we remain focused on executing against our strategic priorities, which we are confident will even better position Party City to drive long term growth and shareholder value.”

First Quarter Summary:

  • Total net sales were $433.0 million, an increase of 1.4% compared to the first quarter 2021 primarily driven by higher retail and North American Wholesale sales partially offset by the divestiture of a significant portion of our international operations in the first quarter of 2021.
  • Total retail sales increased 2.3% versus first quarter 2021 primarily driven by strong comparable sales increases in seasonal categories.
  • The total number of corporate Party City stores was 759 as of March 31, 2022 compared to 751 in the prior year period.
  • Brand comparable sales increased 2.1% in the 13 weeks ended April 2, 2022 versus the 13 weeks ended April 3, 2021.
  • Net third-party wholesale sales decreased 1.6% compared to the first quarter of 2021 principally due to the prior year divestiture of a significant portion of our international operations, partially offset by higher sales to franchise and independent customers as well as strong Anagram sales growth in the first quarter of 2022. Excluding the impact of the divestiture, wholesale sales increased 14.5%. a  
  • Total gross profit margin decreased 380 basis points to 31.9% of net sales. Excluding certain items not indicative of core operating performance, gross profit margin decreased approximately 350 basis points to 32.5% of net sales primarily driven by higher input costs from supply chain, raw materials, sourced merchandise, and labor. a  
  • Operating expenses totaled $158.1 million or $9.0 million higher than the first quarter of 2021. Excluding certain items not indicative of core operating performance, expenses totaled $152.2 million, or 35.1% of net sales, a 260-basis point increase versus prior-year period due to higher store and corporate labor costs and the international divestiture. ab
  • Interest expense was $23.4 million during the first quarter of 2022, compared to $17.2 million during the first quarter of 2021. The increase primarily reflects the higher cost of debt associated with the first quarter of 2021 debt refinancing.
  • Reported GAAP net loss was $26.9 million, or loss of $0.24 per diluted share.
  • Adjusted net loss was $24.7 million, or a loss of $0.22 per diluted share, compared to adjusted net loss of $5.4 million, or a loss of $0.05 per share, in the first quarter of 2021. a
  • Adjusted EBITDA decreased to $4.6 million, versus $32.4 million during the first quarter of 2021 driven primarily by higher freight, material and labor costs, partially offset by higher net sales in the period. a

a Refer to Reconciliation of Adjusted EBITDA for GAAP to Non-GAAP reconciliation. See “Non-GAAP Financial Information” for further description.
b Operating expenses refer to selling, general and administrative expenses.

Balance Sheet and Cash Flow Highlights:

As of the end of the first quarter 2022, the Company had total liquidity of $122.2 million consisting of $32.6 million in cash and approximately $75.2 million of availability under the PCHI ABL Facility and approximately $14.4 million of availability under the Anagram ABL Facility.

The carrying value of the Company's debt as of March 31, 2022 was $1,556.8 million. The principal balance of debt net of cash on March 31, 2022 was $1,430.7 million versus $1,303.0 million in the prior-year period. The principal balance of debt is used for the purpose of all leverage ratio calculations under our debt agreements. The following table reflects both principal amounts as well as net carrying amounts of debt across the Company’s debt instruments:

          Party City Credit Group     Anagram Holdings, LLC     PCHI Consolidated  
    March 31, 2022  
(in Thousands)   Principal Amount     Net Carrying Amount     Net Carrying Amount     Net Carrying Amount  
Loans and notes payable*   $ 211,829     $ 209,112     $ -     $ 209,112  
8.75% Senior Secured First Lien Notes – due 2026     750,000       733,815       -       733,815  
6.125% Senior Notes – due 2023     22,924       22,848       -       22,848  
6.625% Senior Notes – due 2026     92,254       91,627       -       91,627  
First Lien Party City Notes – due 2025     161,669       193,501       -       193,501  
First Lien Anagram Notes – due 2025     118,699       -       148,831       148,831  
Second Lien Anagram Notes – due 2026     93,613       -       144,625       144,625  
Finance lease obligations     12,405       12,405       -       12,405  
Total debt     1,463,393       1,263,308       293,456       1,556,764  
Less: Cash     (32,645 )     (20,766 )     (11,879 )     (32,645 )
Total debt net of cash   $ 1,430,748     $ 1,242,542     $ 281,577     $ 1,524,119  

*Balance consists of ABL Facility.

Net cash used in operating activities in the first three months of 2022 was $116.8 million, compared to net cash used in operating activities of $48.8 million in the prior year period. The increase in cash used in operating activities is primarily attributable to increased inventory purchases to support higher anticipated sales and increased inventory cost due to freight. The increase in cash used is also due to timing of payments related to accounts payable and accrued expenses and a higher net loss, partially offset by lower lease payments as the prior year reflected payment of COVID deferrals. Free cash flowa in the first three months of 2022 was $(14.0) million compared to $10.2 million in the prior year period, with the decrease driven by lower Adjusted EBITDA, partially offset by lower capital expenditures.

a Free cash flow defined as Adjusted EBITDA less capital expenditures (See “Non-GAAP Financial Information”).

Outlook:

The Company is providing the following updated 2022 outlook.

  • Net sales of $2.225 billion to $2.300 billion or an increase of approximately 2.5% to 6.0% versus 2021;
  • Brand comp sales change of approximately -1% to 2%;
  • GAAP net income of approximately $30 million to $48 million, assuming a full-year tax rate of 38%;
  • Adjusted EBITDA of approximately $235 million to $265 million;
  • Capital Expenditures of approximately $110 to $120 million*.

*CAPEX spend includes capital associated with the new headquarters building which will be partially offset by tenant improvement allowances and state tax incentives.

The table below sets forth a reconciliation from our 2022 forecasted GAAP Net Income to our Adjusted EBITDA.

     
(in thousands)   Low   High
GAAP Net Income   $ 29,800   $ 48,400
Income tax     18,200     29,600
Interest expense     96,000     96,000
Depreciation and Amortization Expense     70,000     70,000
GAAP EBITDA   $ 214,000   $ 244,000
EBITDA Add-Backs     21,000     21,000
Adjusted EBITDA   $ 235,000   $ 265,000
             


Conference Call Information

A conference call to discuss the first quarter 2022 financial results is scheduled for today, May 9, 2022, at 8:30 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 844-200-6205, access code 069731 (international callers please dial 929-526-1599) 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 Net Third-Party Wholesale Sales, Adjusted Total Gross Profit Margin, Adjusted Selling, General and Administrative Expenses, Adjusted EBITDA and Adjusted Net Income/Loss. 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.

In addition, we also provide debt principal net of cash, 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. We also present free cash flow, which we define as Adjusted EBITDA less capital expenditures. 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 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 and include Party City’s expectations regarding revenues, Brand Comparable or Same-Store Sales, net income, Adjusted EBITDA and the related adjustments, and capital expenditures. 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: our ability to compete effectively in a competitive industry; fluctuations in commodity prices; successful implementation of our store growth strategy; decreases in our Halloween sales; product recalls or product liability; continuing changes in general economic conditions, and the impact on consumer confidence and consumer spending, including inflationary pressures; the continuing impact of COVID-19 on our global supply chain, retail store operations and customer demand; labor and material shortages and investments; disruption to the transportation system or increases in transportation costs; the impact of inflation on consumer spending; new interpretations of or changes to current accounting rules; our ability to anticipate consumer preferences and buying trends; dependence on timely introduction and customer acceptance of our merchandise; changes in consumer spending based on weather, political, competitive and other conditions beyond our control; delays in store openings; competition from companies with concepts or products similar to ours; timely and effective sourcing of merchandise from our foreign and domestic vendors and delivery of merchandise through our supply chain to our stores and customers; loss or actions of third party vendors and loss of the right to use licensed material; disruptions at our manufacturing facilities; effective inventory management; our ability to manage customer returns; successful catalog management, including timing, sizing and merchandising; uncertainties in e-marketing, infrastructure and regulation; multi-channel and multi-brand complexities; our ability to introduce new brands and brand extensions; challenges associated with our increasing global presence; dependence on external funding sources for operating capital; disruptions in the financial markets; our ability to control employment, occupancy and other operating costs; our ability to improve our systems and processes; changes to our information technology infrastructure; general political, economic and market conditions and events, including war, conflict or acts of terrorism; the impact of tariffs and our ability to mitigate impacts; 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, 2021 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 a leading party goods company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party goods globally by revenue. With hundreds of retail stores filled with thousands of products across the United States, we make it easy for our customers to find the perfect party solution through our assortment of party products, balloons, and costumes for their celebration aided by the support of our party experts both in-store and online. Our 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 which offer rapid, contactless, and same day shipping options (including in-store and at curbside), principally through the domain name PartyCity.com. In addition to our retail operations, we are also one of the largest global designers, manufacturers and distributors of decorated consumer party products, with items found in retail outlets worldwide, including independent party supply stores, mass merchants, grocery retailers, e-commerce merchandisers and dollar stores. We combine state-of-the-art manufacturing and sourcing operations, sophisticated wholesale operations and multi-channel retail and e-commerce retail operations to design, manufacture, source and distribute party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world.

Source: Party City Holdco Inc.

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

    March 31,
2022
    December 31,
2021
    March 31,
2021
 
    (Unaudited)           (Unaudited)  
ASSETS                  
Current assets:                  
Cash and cash equivalents   $ 32,645     $ 47,914     $ 83,806  
Accounts receivable, net     85,280       93,301       81,658  
Inventories, net     517,459       443,295       428,316  
Prepaid expenses and other current assets     69,668       57,656       47,803  
Income tax receivable     55,614       56,317       68,632  
Total current assets     760,666       698,483       710,215  
Property, plant and equipment, net     224,134       221,870       214,698  
Operating lease asset     729,587       693,875       687,214  
Goodwill     664,943       664,296       659,865  
Trade names     383,761       383,737       383,733  
Other intangible assets, net     22,319       23,687       29,912  
Other assets, net     25,425       25,952       9,832  
Total assets   $ 2,810,835     $ 2,711,900     $ 2,695,469  
LIABILITIES AND STOCKHOLDERS’ EQUITY                  
Current liabilities:                  
Loans and notes payable   $ 209,112     $ 84,181     $ 142,859  
Accounts payable     188,842       161,736       127,812  
Accrued expenses     144,397       195,531       146,742  
Current portion of operating lease liability     119,384       116,437       150,860  
Income taxes payable     10,409       10,801        
Current portion of long-term obligations     928       1,373       1,359  
Total current liabilities     673,072       570,059       569,632  
Long-term obligations, excluding current portion     1,346,724       1,351,189       1,358,495  
Long-term portion of operating lease liability     681,949       655,875       628,217  
Deferred income tax liabilities, net     28,067       29,195       31,036  
Other long-term liabilities     23,266       22,868       33,195  
Total liabilities     2,753,078       2,629,186       2,620,575  
Commitments and contingencies                  
Stockholders’ equity:                  
Common stock (112,463,647, 112,170,944 and 111,258,890 shares outstanding and 124,607,064, 124,157,500 and 122,573,377 shares issued at March 31, 2022, December 31, 2021, and March 31, 2021, respectively)     1,384       1,384       1,383  
Additional paid-in capital     984,060       982,307       976,037  
Accumulated deficit     (598,874 )     (571,985 )     (579,486 )
Accumulated other comprehensive income     4,473       3,541       5,134  
Total Party City Holdco Inc. stockholders’ equity before common stock held in
treasury
    391,043       415,247       403,068  
Less: Common stock held in treasury, at cost (12,143,417, 11,986,556 and 11,314,487 shares at March 31, 2022, December 31, 2021, and March 31, 2021, respectively)     (333,286 )     (332,533 )     (327,388 )
Total Party City Holdco Inc. stockholders’ equity     57,757       82,714       75,680  
Noncontrolling interests                 (786 )
     Total stockholders’ equity     57,757       82,714       74,894  
Total liabilities and stockholders’ equity   $ 2,810,835     $ 2,711,900     $ 2,695,469  


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

    Three Months Ended March 31,  
    2022     2021  
Net sales   $ 432,976     $ 426,807  
Cost of sales     294,968       274,521  
Gross profit     138,008       152,286  
Selling, general and administrative expenses**     158,060       149,021  
Loss on disposal of assets in international operations           3,211  
(Loss) income from operations     (20,052 )     54  
Interest expense, net     23,395       17,214  
Other (income) expense, net     (203 )     427  
(Loss) before income taxes     (43,244 )     (17,587 )
Income tax (benefit)     (16,355 )     (3,469 )
Net (loss)     (26,889 )     (14,118 )
Less: Net (loss) attributable to noncontrolling interests           (54 )
Net (loss) attributable to common shareholders of Party City Holdco Inc.   $ (26,889 )   $ (14,064 )
Net (loss) per share attributable to common shareholders of Party City Holdco Inc.–Basic   $ (0.24 )   $ (0.13 )
Net (loss) per share attributable to common shareholders of Party City Holdco Inc.–Diluted   $ (0.24 )   $ (0.13 )
Weighted-average number of common shares-Basic     112,407,040       110,917,349  
Weighted-average number of common shares-Diluted     112,407,040       110,917,349  
Dividends declared per share   $     $  
Comprehensive (loss) income   $ (25,937 )   $ 20,937  
Less: Comprehensive (loss) attributable to noncontrolling interests           (84 )
Comprehensive (loss) income attributable to common shareholders of Party City Holdco Inc.   $ (25,937 )   $ 21,021  
** Consists of wholesale selling expenses, retail operating expenses, art and development costs and general and administrative expenses, which were reported separately in the prior year.  

 

PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)

    Three Months Ended March 31,  
    2022     2021  
Cash flows (used in) operating activities:            
Net (loss)   $ (26,889 )   $ (14,118 )
Adjustments to reconcile net (loss) to net cash (used in) operating activities:            
Depreciation and amortization expense     15,860       17,944  
Amortization of deferred financing costs and original issuance discounts     1,271       863  
Provision for doubtful accounts     945       696  
Deferred income tax expense (benefit)     (1,135 )     (3,386 )
Change in operating lease liability/asset     (6,723 )     (37,556 )
Undistributed loss in equity method investments     310       336  
Loss on disposal of assets     153       110  
Loss on disposal of assets in international operations           3,211  
Goodwill, intangibles and long-lived assets impairment     2,154        
Stock-based compensation**     1,733       1,230  
Loss on debt refinancing           226  
Changes in operating assets and liabilities:            
  Decrease in accounts receivable     7,255       2,952  
  Increase in inventories     (75,596 )     (17,565 )
  Increase in prepaid expenses and other current assets     (11,205 )     (8,768 )
  (Decrease) increase in accounts payable, accrued expenses and income taxes payable     (24,958 )     5,014  
       Net cash (used in) operating activities     (116,825 )     (48,811 )
Cash flows (used in) investing activities:            
Cash paid in connection with acquisitions, net of cash acquired     (7 )      
Capital expenditures     (18,620 )     (22,184 )
Proceeds from disposal of property and equipment     1,610        
Proceeds from sale of international operations, net of cash disposed           20,556  
       Net cash (used in) investing activities     (17,017 )     (1,628 )
Cash flows provided by (used in) financing activities:            
Repayment of loans, notes payable and long-term obligations     (5,518 )     (792,849 )
Proceeds from loans, notes payable and long-term obligations     124,759       794,750  
Treasury stock purchases     (753 )     (206 )
Exercise of stock options           2,855  
Debt issuance costs           (21,437 )
       Net cash provided by (used in) financing activities     118,488       (16,887 )
Effect of exchange rate changes on cash and cash equivalents     85       (177 )
       Net (decrease) in cash and cash equivalents and restricted cash     (15,269 )     (67,503 )
Change in cash classified within current assets held for sale           31,628  
Cash and cash equivalents and restricted cash at beginning of period*     48,914       119,681  
Cash and cash equivalents and restricted cash at end of period*   $ 33,645     $ 83,806  
Supplemental disclosure of cash flow information:            
Cash paid during the period for interest expense   $ 41,173     $ 20,309  
Cash (received) paid during the period for income taxes, net of refunds   $ (421 )   $ 127  
             
*Includes $1,000 of restricted cash at March 31, 2022 and December 31, 2021. There was no restricted cash as of March 31, 2021. The Company records restricted cash in other assets, net as presented in the consolidated balance sheet at March 31, 2022 and December 31, 2021.  
** Stock-based compensation consists of stock-option expense – time-based, restricted stock units – time-based, restricted stock units – performance-based and directors – non-cash compensation, which were shown separately in prior years.  

 

PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA
(Unaudited)

    Three months ended March 31,  
    2022     2021  
(Dollars in thousands)            
Net (loss)   $ (26,889 )   $ (14,118 )
Interest expense, net     23,395       17,214  
Income tax (benefit)     (16,355 )     (3,469 )
Depreciation and amortization     15,860       17,944  
EBITDA     (3,989 )     17,571  
Inventory restructuring and early lease terminations (f)           3,138  
Other restructuring, retention and severance (a)           2,051  
Goodwill, intangibles and long-lived assets impairment (b)     2,154      
Deferred rent (c)     2,525       1,526  
Closed store expense (d)     987       1,593  
Foreign currency (gains), net     (281 )     (539 )
Stock-based compensation - employee**     1,712       1,282  
Undistributed loss in equity method investments     310       336  
Gain on sale of property, plant and equipment     (119 )      
COVID - 19 (e)           615  
Inventory disposal reserve     621        
Loss on sale of business           3,211  
Net loss on debt repayment (g)           226  
Other     684       1,409  
Adjusted EBITDA   $ 4,604     $ 32,419  
Adjusted EBITDA Margin     1.1 %     7.6 %
** Stock-based compensation consists of stock-option expense – time-based, restricted stock units – time-based and restricted stock units – performance-based, which were shown separately in prior years.  


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

          Three Months Ended March 31, 2022 EBITDA Adjustments        
    March 31, 2022
GAAP
Basis (as
reported)
    Goodwill, intangibles and long-lived assets impairment (b)     Inventory disposal reserve     Gain on sale of property, plant and equipment     Stock-based compensation - employee**     Deferred rent (c)     Closed store expense (d)     Foreign currency losses/(gains), net     Other     March 31,
2022
Non-GAAP
basis
 
Net sales   $ 432,976                                                     $ 432,976  
Cost of sales     294,968             (621 )                 (2,017 )                       292,330  
Gross profit     138,008                                                       140,646  
Selling, General and administrative expenses**     158,060       (2,154 )           119       (1,712 )     (508 )     (987 )           (648 )     152,170  
(Loss) from operations     (20,052 )                                                     (11,524 )
Interest expense, net     23,395                                                 (40 )     23,355  
Other (income) expense, net     (203 )                                         281       (306 )     (228 )
(Loss) before Income Taxes     (43,244 )                                                     (34,651 )
Interest expense, net     23,395                                                       23,395  
Depreciation and amortization     15,860                                                       15,860  
EBITDA     (3,989 )                                                     4,604  
Adjustments to EBITDA     8,593       (2,154 )     (621 )     119       (1,712 )     (2,525 )     (987 )     281       (994 )      
Adjusted EBITDA   $ 4,604     $ (2,154 )   $ (621 )   $ 119     $ (1,712 )   $ (2,525 )   $ (987 )   $ 281     $ (994 )   $ 4,604  
** Consists of wholesale selling expenses, retail operating expenses, art and development costs and general and administrative expenses, which were reported separately in the prior year.        


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

          Three Months Ended March 31, 2021 EBITDA Adjustments        
    March 31, 2021
GAAP
Basis (as
reported)
    Early lease terminations     Net loss on debt repayment (g)     Stock-based compensation - employee**     Deferred rent (c)     Other restructuring, retention and severance (a)     Closed store expense (d)     COVID - 19 (e)     Foreign
currency
loss
    Other     March 31,
2021
Non-GAAP
basis
 
Net sales   $ 426,807                                                           $ 426,807  
Cost of sales     274,521       (1,382 )                                               124       273,263  
Gross profit     152,286                                                             153,544  
Selling, General and administrative expenses**     149,021       (1,756 )           (1,282 )     (1,526 )     (2,052 )     (1,593 )     (615 )           (1,367 )     138,831  
Loss on disposal of assets in international operations     3,211                                                       (3,211 )      
Income from operations     54                                                             14,713  
Interest expense, net     17,214                                                       (54 )     17,160  
Other (income) expense, net     427             (226 )                                   539       (449 )     292  
(Loss) before income taxes     (17,587 )                                                           (2,739 )
Interest expense, net     17,214                                                             17,214  
Depreciation and amortization     17,944                                                             17,944  
EBITDA     17,571                                                             32,419  
Adjustments to EBITDA     14,848       (3,138 )     (226 )     (1,282 )     (1,526 )     (2,052 )     (1,593 )     (615 )     539       (4,957 )     (0 )
Adjusted EBITDA   $ 32,419     $ (3,138 )   $ (226 )   $ (1,282 )   $ (1,526 )   $ (2,052 )   $ (1,593 )   $ (615 )   $ 539     $ (4,957 )   $ 32,419  
** Consists of wholesale selling expenses, retail operating expenses, art and development costs and general and administrative expenses, which were reported separately in the prior year.  


PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED NET INCOME
(Unaudited)

    Three months ended March 31,  
    2022     2021  
(Dollars in thousands, except per share amounts)            
(Loss) before income taxes   $ (43,244 )   $ (17,587 )
Intangible asset amortization     1,544       2,477  
Amortization of deferred financing costs and original
issuance discounts
    1,271       863  
Other restructuring, retention and severance (a)           1,936  
Goodwill, intangibles and long-lived assets impairment (b)     2,154      
Stock option expense     85       113  
Restricted stock unit and restricted cash awards expense – performance-based     569       817  
COVID - 19 (e)           615  
Loss on disposal of assets           3,211  
Inventory disposal reserve     621       764  
Adjusted (loss) before income taxes     (37,000 )     (6,791 )
Adjusted income tax (benefit) (h)     (12,321 )     (1,382 )
Adjusted net (loss)   $ (24,679 )   $ (5,409 )
Adjusted net (loss) per common share – diluted   $ (0.22 )   $ (0.05 )
Weighted-average number of common shares-diluted     112,407,040       110,917,349  

(a) Amounts expensed principally relate to severance due to organizational changes.

(b) In December 2021, the Company announced the closure of a manufacturing facility in New Mexico that ceased operations in February 2022. As a result, the Company recorded related shutdown charges (see Note 3, Disposition of Assets in Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in the Quarterly Report on Form 10-Q).

(c) 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.

(d) Charges incurred related to closing and relocating stores in the ordinary course of business.

(e) 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.

(f) Costs incurred for early lease terminations and a merchandise transformation project to transition and optimize stores to the reduced SKU assortment levels.

(g) The Company recognized net gain on debt repayment in 2021.

(h) 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.


PARTY CITY HOLDCO INC.

RECONCILIATION OF ADJUSTED THIRD-PARTY WHOLESALE SALES
(In thousands, except percentages, unaudited)

    Three Months Ended March 31,
    2022     2021     Percent Variance  
Wholesale third-party sales   $ 92,025     $ 93,524       (1.6 )%
Third-party sales of divested entities           (13,165 )      
Adjusted Wholesale third-party sales   $ 92,025     $ 80,360       14.5


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

    Three months ended March 31,
    2022 2021
    Dollars in
Thousands
    Percentage of
Net sales
  Dollars in
Thousands
    Percentage of
Net sales
Net sales:                        
Wholesale   $ 239,680       55.4   $ 212,137       49.7 %
Eliminations     (147,655 )     (34.1 )     (118,612 )     (27.8 )
Net wholesale     92,025       21.3       93,525       21.9  
Retail     340,951       78.7       333,282       78.1  
Total net sales   $ 432,976       100.0   $ 426,807       100.0

 

    Three months ended March 31,
    2022   2021
    Dollars in Thousands     Percentage of Net Sales     Dollars in Thousands     Percentage of Net Sales  
Retail gross profit   $ 113,366       33.2   $ 123,178       37.0
Wholesale gross profit     24,642       26.8       29,108       31.1  
Total gross profit   $ 138,008       31.9   $ 152,286       35.7


PARTY CITY HOLDCO INC.
OPERATING METRICS

    Three months ended March 31,     Last 12 Months  
    2022     2021        
                   
Store Count                  
Corporate Stores:                  
Beginning of period     759       746       751  
New stores opened     2       5       7  
Acquired               10  
Closed     (2 )         (9 )
End of period     759       751       759  
Franchise Stores                  
Beginning of period     72       85       82  
New stores opened              
Sold to Party City               (10 )
Closed     (1 )     (3 )     (1 )
End of period     71       82       71  
Grand Total     830       833       830  

 

    Three months ended March 31,
    2022     2021  
         
Wholesale Share of Shelf (a)   78.6 %   81.5 %
Manufacturing Share of Shelf (b)   31.1 %   33.0 %
         
         
         
    Three months ended March 31,
    2022     2021  
         
Brand comparable sales (c)   2.1 %   35.9 %

(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.

 


Contact:
ICR
Farah Soi and Rachel Schacter
203-682-8200
InvestorRelations@partycity.com 

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Source: Party City Holdco Inc.