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Party City Reports Fourth Quarter and Full Year 2021 Results

02/28/2022

Total Net Sales Increased 7.7% in Fourth Quarter and 17.3% in 2021 versus prior year

Fourth Quarter Comparable Sales Increased 17.8% versus prior year driven by strength in core categories

Fourth Quarter GAAP Net Loss of $19.5 million; Adjusted Net Income of $46.7 million

Fourth Quarter Adjusted EBITDA Increased 36.1% to $105.2 million

ELMSFORD, N.Y., Feb. 28, 2022 (GLOBE NEWSWIRE) -- Party City Holdco Inc. (the “Company” or “PRTY”; NYSE:PRTY) today announced financial results for the quarter and full year ended December 31, 2021.

Brad Weston, Chief Executive Officer of Party City, stated, “We are pleased with our fourth quarter and full year results that were in-line with our expectations as we closed out another successful year. To that end, 2021 was an important year of transformation for the Company as we advanced the fundamental building blocks of our strategy across product innovation, in-store experience, being celebration occasion obsessed and focusing on our North American vertical model, which have yielded important benefits. We are so proud of the entire PCHI team and all that they accomplished across our manufacturing operations, stores and supply chain, while navigating a truly uncertain and dynamic environment.”

Mr. Weston added, “In 2022, we will build on our progress with a focus on customer engagement enhancements, and investments in IT, supply chain and infrastructure. While we expect inflation and supply chain headwinds to persist in 2022, we remain committed to delivering an improved customer experience as well as appropriately exercising our pricing power. We are confident these efforts, combined with the capabilities that we have put in place over the course of the last two years of the pandemic, will serve us well in 2022 and beyond.”

Fourth Quarter Summary:

  • Total net sales were $ 698.3 million, an increase of 7.7% compared to the fourth quarter 2020 primarily driven by the strong retail sales growth, partially offset by the divestiture of a significant portion of our international operations in the first quarter of 2021.
  • Total retail sales increased 12.6% versus fourth quarter 2020 primarily driven by a strong comparable sales increase in our core everyday categories, partially offset by incremental sales from the 53rd week in 2020.
  • The total number of corporate Party City stores was 759 as of December 31, 2021 compared to 746 in the prior year period.
  • Brand comparable sales increased 17.8% in the 13 weeks ended December 31, 2021 versus the 13 weeks ended January 2, 2021 and increased 10.8% compared to the 13 weeks ended January 4, 2020.a
  • Net third-party wholesale sales decreased 13.7% to $104.3 million compared to $120.8 million in the fourth quarter of 2020 principally due to the divestiture of a significant portion of our international operations in the first quarter of 2021. Excluding international operations in 2020, net third-party wholesale sales increased 30.3%, driven by strong performance at our Anagram balloon division and broad increases in revenue across the wholesale customer base.a
  • Total gross profit margin increased 480 basis points to 30.8% of net sales. Excluding certain items not indicative of core operating performance, gross profit margin increased approximately 120 basis points to 41.2% of net sales driven primarily by the divestiture of international operations and leverage on retail occupancy costs, offset partially by increased input costs from supply chain, raw materials, sourced merchandise and labor.a
  • Operating expenses totaled $212.2 million or $68.9 million lower than the fourth quarter of 2020 primarily due to a loss on assets held for sale recorded in the fourth quarter of 2020. Excluding certain items not indicative of core operating performance, operating expenses totaled $197.5 million, or 28.3% of net sales, a 260-basis point decrease versus prior-year period primarily driven by leverage on higher sales partially offset by the divestiture of a significant portion of our international operations and increased retail wage rates.a
  • Interest expense was $23.0 million during the fourth quarter of 2021, compared to $13.1 million during the fourth quarter of 2020. The increase primarily reflects higher cost debt from the debt refinancing in the first quarter of 2021.
  • Reported GAAP net loss was $19.5 million, or loss of $0.17 per diluted share.
  • Adjusted net income was $46.7 million, or earnings of $0.40 per diluted share, compared to adjusted net income of $27.5 million, or income of $0.25 per share, in the fourth quarter of 2020.a
  • Adjusted EBITDA was $105.2 million, versus $77.3 million during the fourth quarter of 2020.a

aRefer to Adjusted EBITDA for GAAP to Non-GAAP reconciliation. See “Non-GAAP Financial Information” for further description.

Full Year Summary:

  • Total net sales were $2,171.1 million, an increase of 17.3% compared to prior year.
  • Total Retail sales were $1,770.0 million, an increase of 28.0% compared to prior year, primarily due to higher demand post COVID-19, with a brand comparable sales increase of 34.2%.
  • Net third-party Wholesale sales decreased 14.4% compared to prior year, primarily driven by the divestiture of a significant portion of our international operations in the first quarter of 2021 partially offset by strong performance at our Anagram balloon division.
  • Total gross profit margin increased 940 basis points to 35.4% of net sales. Excluding certain items not indicative of core operating performance, gross profit margin increased 450 basis points to 38.9% of net sales mainly due to leverage from increased retail sales and the divestiture of lower margin international operations, partially offset by increased input costs from supply chain, raw materials, sourced merchandise and labor.a
  • Operating expenses totaled $683.4 million. Excluding certain items not indicative of core operating performance, operating expenses totaled $644.6 million, or 29.7% of net sales, a 360-basis point decrease versus prior-year period primarily driven by leverage on higher sales partially offset by the divestiture of a significant portion of our international operations.
  • Interest expense was $87.2 million during 2021, compared to $77.0 million during the 2020. The increase primarily reflects higher cost debt from the refinancing in the first quarter of 2021, partially offset by lower average amounts of principal debt outstanding in 2021 versus prior year.
  • Reported GAAP net loss was $6.5 million, or loss of $0.06 per share.
  • Adjusted net income was $78.3 million, or income of $0.68 per diluted share compared to adjusted net loss of $49.2 million, or $0.49 per share, in 2020. (See “Non-GAAP Financial Information”)
  • Adjusted EBITDA was $266.3 million, versus $95.5 million during 2020. (See “Non-GAAP Financial Information”)

aRefer to Adjusted EBITDA for GAAP to Non-GAAP reconciliation. See “Non-GAAP Financial Information” for further description.

Balance Sheet and Cash Flow Highlights:

As of the end of the fourth quarter 2021, the Company had $47.9 million in cash and approximately $ 192.4 million of availability under the PCHI ABL Facility and approximately $14.4 million of availability under the Anagram ABL Facility, for total liquidity of $254.7 million.

The carrying value of the Company's debt as of December 31, 2021 was $1,436.7 million. The principal balance of debt net of cash on December 31, 2021 was $1,284.0 million versus $1,253.6 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  
  December 31, 2021  
  Principal Amount   Net Carrying Amount   Net Carrying Amount     Net Carrying Amount  
Loans and notes payable * $ 87,070   $ 84,181   $ -     $ 84,181  
8.75% Senior Secured First Lien Notes – due 2026   750,000     732,957     -       732,957  
6.125% Senior Notes — due 2023   22,924     22,834     -       22,834  
6.625% Senior Notes — due 2026   92,254     91,591     -       91,591  
First Lien Party City Notes – due 2025   161,669     198,004     -       198,004  
First Lien Anagram Notes – due 2025   115,804     -     149,569       149,569  
Second Lien Anagram Notes – due 2026   89,155     -     144,619       144,619  
Finance lease obligations   12,988     12,988     -       12,988  
Total debt   1,331,864     1,142,555     294,188       1,436,743  
Less: Cash   (47,914 )   (28,465 )   (19,449 )     (47,914 )
Total debt net of cash $ 1,283,950   $ 1,114,090   $ 274,739     $ 1,388,829  

*Balance consists of ABL Facility.

The Net cash provided by operating activities in 2021 was $51.9 million, compared to net cash provided by operating activities of $77.2 million in the prior year period. The decrease in cash provided is primarily attributable to an increase in seasonal inventory and the related freight, as well as the repayment of rents deferred from 2020. Free cash flowb in the first twelve months of 2021 was $187.1 million compared to $44.4 million in the prior year period, with the improvement driven by higher Adjusted EBITDA due to improved operating results, partially offset by higher capital expenditures.

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

Fiscal Year 2022:

The Company is providing the following fiscal full year 2022 outlook. This outlook is subject to potential consumer and marketplace volatility due to the COVID-19 pandemic:

  • Total revenue of $2.275 to $2.350 billion
  • Brand comparable sales percentage increase of 2.0% to 4.0%.
  • GAAP net income of $64.2 million to $82.5 million with an assumed tax rate of 27%
  • Adjusted EBITDA of $275 to $300 million
  • Cash interest of approximately $95 to $105 million
  • 100 to 125 new Next Generation stores, with a combination of new openings and remodels
  • Capital expenditures of approximately $120 to $130 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 year 2022 forecasted GAAP Net Income to our Adjusted EBITDA.

    FY 2022    
(in thousands)   Low     High    
Net Income   $ 64,200     $ 82,500    
Income tax expense     23,800       30,500    
Interest expense, net     96,000       96,000    
Depreciation and amortization expense     70,000       70,000    
EBITDA     254,000       279,000    
EBITDA Add-Backs     21,000       21,000    
Adjusted EBITDA   $ 275,000     $ 300,000    
                   

Conference Call Information

A conference call to discuss the fourth quarter 2021 financial results is scheduled for today, February 28, 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 844-757-5731 (U.S. domestic) or 412-542-4126 (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, Adjusted Net Income/Loss, Operating margin as a percentage of net sales, and non-GAAP operating expenses as a percentage of net revenue. 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. We also utilize brand comparable sales, sales, gross profit margin and operating expense each excluding certain items not indicative of core operating performance, such as the divestiture of international operations. The Company has reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in tables accompanying this release. 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, subtracting Cash and Cash Equivalents. We also define free cash flow 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 including, but not limited to the statements under “Outlook,” the statements contained in the quotations; and any statements of assumptions underlying any of the foregoing. 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; 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 COVID-19 on our financial performance; disruption to the transportation system or increases in transportation costs; supply chain constraints; product recalls or product liability; economic slowdown affecting consumer spending and general economic conditions; inflationary pressures; loss or actions of third party vendors and loss of the right to use licensed material; adoption of or changes to laws, regulations, standards or policies affecting our operations, products or industry; disruptions at our manufacturing facilities; and the additional risks and uncertainties set forth in Party City’s annual report on Form 10-K and quarterly reports on Form 10-Q 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. We have not filed our Form 10-K for the year ended December 31, 2021. As a result, all financial results described in this press release should be considered preliminary, and are subject to change to reflect any necessary adjustments or changes in accounting estimates, that are identified prior to the time we file our Form 10-K.

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.

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

Source: Party City Holdco Inc.


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

    December 31, 2021     December 31, 2020  
ASSETS            
Current assets:            
Cash and cash equivalents   $ 47,914     $ 119,532  
Accounts receivable, net     93,301       90,879  
Inventories, net     443,295       412,285  
Prepaid expenses and other current assets     57,656       45,905  
Income tax receivable     56,317       57,549  
Assets held for sale, net           83,110  
Total current assets     698,483       809,260  
Property, plant and equipment, net     221,870       209,412  
Operating lease asset     693,875       700,087  
Goodwill     664,296       661,251  
Trade names     383,737       384,428  
Other intangible assets, net     23,687       32,134  
Other assets, net     25,952       9,883  
Total assets   $ 2,711,900     $ 2,806,455  
LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:            
Loans and notes payable   $ 84,181     $ 175,707  
Accounts payable     161,736       118,928  
Accrued expenses     195,531       160,605  
Liabilities held for sale           68,492  
Current portion of operating lease liability     116,437       176,045  
Income taxes payable     10,801       524  
Current portion of long-term obligations     1,373       13,576  
Total current liabilities     570,059       713,877  
Long-term obligations, excluding current portion     1,351,189       1,329,808  
Long-term portion of operating lease liability     655,875       654,729  
Deferred income tax liabilities     29,195       34,705  
Other long-term liabilities     22,868       22,815  
Total liabilities     2,629,186       2,755,934  
Redeemable securities            
Commitments and contingencies            
Stockholders’ equity:            
Common stock (112,170,944 and 110,781,613 shares outstanding and 124,157,500 and 121,662,540 shares issued at December 31, 2021 and December 31, 2020, respectively)     1,384       1,373  
Additional paid-in capital     982,307       971,972  
Retained (deficit) earnings     (571,985 )     (565,457 )
Accumulated other comprehensive income (loss)     3,541       (29,916 )
Total Party City Holdco Inc. stockholders’ equity before common stock held in treasury     415,247       377,972  
Less: Common stock held in treasury, at cost (11,986,556 and 11,280,098 shares at
December 31, 2021 and December 31, 2020, respectively)
    (332,533 )     (327,182 )
Total Party City Holdco Inc. stockholders’ equity     82,714       50,790  
Noncontrolling interests           (269 )
Total stockholders’ equity     82,714       50,521  
Total liabilities, redeemable securities and stockholders’ equity   $ 2,711,900     $ 2,806,455  


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

  Three Month Ended
December 31,
    Twelve Month Ended
December 31,
 
  2021     2020     2021     2020  
Net sales $ 698,308     $ 648,181     $ 2,171,060     $ 1,850,690  
Cost of sales   483,408       479,348       1,403,004       1,369,935  
Gross profit   214,900       168,833       768,056       480,755  
Wholesale selling expenses   6,785       13,006       30,762       50,121  
Retail operating expenses   141,250       136,896       432,531       387,398  
General and administrative expenses   49,370       51,047       186,698       225,322  
Art and development costs   5,759       4,543       21,174       17,638  
Store impairment and restructuring charges         1,631             22,449  
Loss on disposal of assets in international operations         73,948       3,211       73,948  
Goodwill, intangibles and long-lived assets impairment   9,048             9,048       581,380  
(Loss) income from operations   2,688       (112,238 )     84,632       (877,501 )
Interest expense, net   22,997       13,089       87,226       77,043  
Other expense, net   597       (572 )     (614 )     3,715  
Gain on debt repayment/refinancing               (1,106 )     (273,149 )
(Loss) income before income taxes   (20,906 )     (124,755 )     (874 )     (685,110 )
Income tax expense (benefit)   (1,420 )     (28,360 )     5,708       (156,653 )
Net (loss) income   (19,486 )     (96,395 )     (6,582 )     (528,457 )
Less: Net loss attributable to noncontrolling interests         22       (54 )     (219 )
Net (loss) income attributable to common shareholders of Party City Holdco Inc $ (19,486 )   $ (96,417 )   $ (6,528 )   $ (528,238 )
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.—Basic $ (0.17 )   $ (0.88 )   $ (0.06 )   $ (5.24 )
Net (loss) income per share attributable to common shareholders of Party City Holdco Inc.—Diluted $ (0.17 )   $ (0.87 )   $ (0.06 )   $ (5.24 )
Weighted-average number of common shares—Basic   111,750,508       109,603,253       110,980,934       100,804,944  
Weighted-average number of common shares—Diluted   111,750,508       109,603,253       110,980,934       100,804,944  

* Includes royalties and franchise fees. Prior year amounts conformed to current year presentation


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

    Years Ended December 31,  
    2021     2020     2019  
                (Adjusted, see Note 2)  
Cash flows provided by operating activities:                  
Net (loss) income   $ (6,582 )   $ (528,457 )   $ (532,858 )
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
                 
Depreciation and amortization expense     65,610       76,506       81,116  
Amortization of deferred financing costs and original issuance discounts     4,516       4,198       4,722  
Provision for doubtful accounts     2,569       6,321       2,323  
Deferred income tax (benefit) expense     (5,155 )     (95,085 )     (47,366 )
Undistributed (income) loss in equity method investments     (220 )     333       (472 )
Change in operating lease liability/asset     (51,326 )     30,981       (9,942 )
Loss (gain) on disposal of assets     2,781       70       (59,786 )
Loss on disposal of assets in international operations     3,211       73,948        
Non-cash adjustment for store impairment and restructuring           17,585       20,236  
Goodwill, intangibles and long-lived assets impairment     11,974       581,380       562,631  
Non-employee equity based compensation (see Note 25 – Kazzam, LLC)           1,033       515  
Stock option expense – time-based     396       796       1,319  
Stock option expense – performance-based           7,847        
Restricted stock unit – performance-based     3,504       1,329        
Restricted stock units expense – time-based     2,557       2,071       2,033  
Directors – non-cash compensation     228       337       313  
Gain on debt repayment/refinancing     (1,106 )     (273,149 )      
Changes in operating assets and liabilities, net of effects of acquired
businesses:
                 
(Increase) decrease in accounts receivable     (10,673 )     22,396       (2,600 )
(Increase) decrease in inventories     (34,236 )     184,924       72,385  
(Increase) decrease in prepaid expenses and other current assets, net     (21,419 )     (66,166 )     14,741  
Increase (decrease) in accounts payable, accrued expenses and income
taxes payable
    85,306       28,002       (65,617 )
Net cash provided by operating activities     51,935       77,200       43,693  
Cash flows provided by (used in) provided by investing activities:                  
Cash paid in connection with acquisitions, net of cash acquired     (6,954 )     (3,305 )     (20,878 )
Capital expenditures     (79,222 )     (51,128 )     (61,733 )
Proceeds from disposal of property and equipment     225       162       246,286  
Proceeds from sale of international operations, net of cash disposed     20,556              
Net cash (used in) provided by investing activities     (65,395 )     (54,271 )     163,675  
Cash flows (used in) provided by financing activities:                  
Repayment of loans, notes payable and long-term obligations     (949,907 )     (254,438 )     (441,632 )
Proceeds from loans, notes payable and long-term obligations     883,890       368,439       203,344  
Exercise of stock options     3,680       147       1,148  
Treasury stock purchases     (5,351 )     (96 )     (156 )
Debt issuance and modification costs     (21,437 )     (20,348 )     (414 )
Net cash (used in) provided by financing activities     (89,125 )     93,704       (237,710 )
Effect of exchange rate changes on cash and cash equivalents     190       (500 )     6,299  
Net (decrease) increase in cash and cash equivalents and
restricted cash
    (102,395 )     116,133       (24,043 )
Less: net increase/decrease in cash classified within current assets held for sale     31,628       (31,628 )      
Cash and cash equivalents and restricted cash at beginning of period     119,681       35,176       59,219  
Cash and cash equivalents and restricted cash at end of period*   $ 48,914     $ 119,681     $ 35,176  
Supplemental disclosure of cash flow information:                  
Cash paid during the period:                  
Interest   $ 57,971     $ 68,396     $ 108,561  
Income taxes, net of refunds   $ 5,413     $ 26,867     $ 36,093  

*Includes $1,000, $149 and $259 of restricted cash for the fiscal years ended December 31, 2021, 2020 and 2019 respectively. The Company recorded restricted cash in Other assets, net as presented in the consolidated balance sheet at December 31, 2021 and in Prepaid expenses and other current assets as presented in the consolidated balance sheets at December 31, 2020 and 2019.


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

    Three Months Ended
December 31,
    Year Ended
December 31,
 
    2021     2020     2021     2020  
(Dollars in thousands)                        
Net (loss) income   $ (19,486 )   $ (96,395 )   $ (6,582 )   $ (528,457 )
Interest expense, net     22,997       13,089       87,226       77,043  
Income tax (benefit)     (1,420 )     (28,360 )     5,708       (156,653 )
Depreciation and amortization     15,317       18,710       65,610       76,506  
EBITDA     17,408       (92,956 )     151,962       (531,561 )
Store impairment and restructuring charges (a)           3,038             39,323  
Inventory restructuring and early lease terminations (b)                 7,158        
Other restructuring, retention and severance     264       403       2,346       12,104  
Goodwill, intangibles and long-lived assets impairment (c)     11,974             11,974       581,380  
Deferred rent (d)     1,293       (529 )     3,325       (3,147 )
Closed store expense (f)     1,004       976       4,743       3,858  
Foreign currency losses/(gains), net     (122 )     (2,013 )     (1,090 )     (1,058 )
Stock option expense – time – based (g)     87       125       397       796  
Stock option expense – performance – based (g)                       7,847  
Non-employee equity-based compensation (h)                       1,033  
Undistributed income (loss) in equity method
investments
    600       (356 )     (220 )      
Corporate development expenses (h)           1,004             7,197  
Restricted stock units – time-based (i)     914       503       2,557       2,071  
Restricted stock unit and restricted cash awards expense – performance-based (i)     872       950       3,773       1,460  
Non-recurring legal settlements/costs           673             7,843  
(Gain) on debt repayment/refinancing (j)                 (1,106 )     (273,149 )
Loss on disposal of property, plant and equipment     (14 )           2,784        
Inventory disposal reserve     68,707       88,358       68,707       88,358  
Loss on sale of business (k)           73,948       3,211       73,948  
COVID-
19 (m)
          2,784       1,270       73,843  
Other     2,168       354       4,502       3,388  
Adjusted EBITDA   $ 105,155     $ 77,262     $ 266,294     $ 95,534  
Adjusted EBITDA margin     15.1 %     11.9 %     12.3 %     5.2 %

* Prior period amounts have been reclassified to conform with current period presentation.


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

        Three Months Ended December 31, 2021 EBITDA Adjustments        
    December 31,2021
GAAP
Basis (as
reported)
    Goodwill, intangibles and long-lived assets impairment (c)     Inventory disposal reserve (l)     Loss on disposal of property, plant and equipment     Stock Option
Expense/Non-
Employee Equity
Compensation/
Restricted
stock units (i)
    Deferred
Rent (d)
    Other
restructuring,
retention and
severance
    Closed
store
expense (f)
    Foreign
currency
gains
      Other     December 31,
2021
Non-GAAP
basis
 
Net sales   $ 698,308                                                             $ 698,308  
Cost of sales     483,408       (2,425 )     (68,707 )                 (1,335 )                               410,941  
Gross Profit     214,900                                                               287,367  
Wholesale selling expenses     6,785                                                               6,785  
Retail operating expenses     141,251                               (0 )           (999 )             (2,722 )     137,529  
General and administrative expenses     49,370       (501 )           0       (1,873 )     43       (264 )     (5 )             694       47,463  
Art and development costs     5,759                                                               5,759  
Goodwill, intangibles and long-lived assets impairment     9,048       (9,048 )                                                        
Income from operations     2,687                                                               89,831  
Interest expense, net     22,997                                                     -     (135 )     22,862  
Other (income) expense, net     597                   14                               122     -     (602 )     130  
Income (loss) before income taxes     (20,907 )                                                             66,839  
Interest expense, net     22,999                                                     -           22,999  
Depreciation and amortization     15,317                                                     -           15,317  
EBITDA     17,409                                                               105,155  
Adjustments to EBITDA     87,746       (11,974 )     (68,707 )     14       (1,873 )     (1,293 )     (264 )     (1,004 )     122     -     (2,766 )     0  
Adjusted EBITDA   $ 105,155     $ (11,974 )   $ (68,707 )   $ 14     $ (1,873 )   $ (1,293 )   $ (264 )   $ (1,004 )   $ 122       $ (2,766 )   $ 105,155  


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

          Three Months Ended December 31, 2020 EBITDA Adjustments        
    December 31, 2020
GAAP
Basis (as
reported)
    Store
impairment
and
restructuring
charges , Inventory disposal (a, l)
    Corporate
development
expenses (e)
    Non-recurring legal settlements     Stock Option
Expense/Non-
Employee Equity
Compensation/
Restricted
stock units
(g,h,i)
    Deferred
Rent (d)
    Other
restructuring,
retention and
severance
    Closed
store
expense (f)
    COVID-
19 (m)
    Foreign
currency
gains
    Other (k)     December 31,
2020
Non-GAAP
basis
 
Net sales   $ 648,181                                                                 $ 648,181  
Cost of sales     479,348       (89,765 )                                         (506 )                 389,077  
Gross Profit     168,833                                                                   259,104  
Wholesale selling expenses     13,006                                                                   13,006  
Retail operating expenses     136,896                               480             (823 )     (1,956 )                 134,597  
General and administrative expenses     51,047             360       (673 )     (1,578 )     49       (403 )     (153 )     (322 )                 48,327  
Art and development costs     4,543                                                                   4,543  
Store impairment and restructuring charges     1,631       (1,631 )                                                            
Loss on sale of business     73,948                                                             (73,948 )      
(Loss) Income from operations     (112,238 )                                                                 58,631  
Interest expense, net     13,089                                                                   13,089  
Other (income) expense, net     (572 )           (1,364 )                                         2,013       2       79  
Gain on debt repayment/refinancing                                                                        
Income (loss) before income taxes     (124,755 )                                                                 45,463  
Interest expense, net     13,089                                                                   13,089  
Depreciation and amortization     18,710                                                                   18,710  
EBITDA     (92,956 )                                                                 77,262  
Adjustments to EBITDA     170,218       (91,396 )     (1,004 )     (673 )     (1,578 )     529       (403 )     (976 )     (2,784 )     2,013       (73,946 )      
Adjusted EBITDA   $ 77,262     $ (91,396 )   $ (1,004 )   $ (673 )   $ (1,578 )   $ 529     $ (403 )   $ (976 )   $ (2,784 )   $ 2,013     $ (73,946 )   $ 77,262  
                                                                         
* Prior year amounts conformed to current year presentation.  


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

          Twelve Months Ended December 31, 2021 EBITDA Adjustments *        
    December 31, 2021
GAAP
Basis (as
reported)
    Goodwill, intangibles and long-lived assets impairment (c)     Inventory restructuring and early lease terminations, Inventory disposal (b,l)     (Gain) on debt repayment/
refinancing (j)
    Loss on disposal of property, plant and equipment     Stock Option
Expense/Non-
Employee Equity
Compensation/
Restricted
stock units (g,i)
    Deferred
Rent (d)
    Other
restructuring,
retention and
severance
    Closed
store
expense (f)
    COVID-
19 (m)
    Foreign
currency
gains
    Other     December 31,
2021
Non-GAAP
basis
 
Net sales   $ 2,171,060                                                                       $ 2,171,060  
Cost of sales     1,403,004       (2,425 )     (72,921 )                       (2,280 )                             124       1,325,502  
Gross profit     768,056                                                                         845,558  
Wholesale selling expenses     30,762                                                                         30,762  
Retail operating expenses     432,532             (2,943 )                       (1,212 )           (4,689 )     (1,053 )           (4,348 )     418,286  
General and administrative expenses     186,698       (501 )                 (2,640 )     (6,726 )     168       (2,346 )     (54 )     (217 )           5       174,386  
Art and development costs     21,174                                                                         21,174  
Store impairment and restructuring charges                                                                              
Loss on sale of business     3,211                                                                   (3,211 )     (0 )
Goodwill, intangibles and long-lived assets impairment     9,048       (9,048 )                                                                  
(Loss) from operations     84,631                                                                         200,950  
Interest expense, net     87,226                                                                   (273 )     86,953  
Other expense, net     (614 )                 1,106       (144 )                                   1,090       210       1,647  
Gain on debt repayment/refinancing     (1,106 )                                                                       (1,106 )
(Loss) before income taxes     (875 )                                                                       113,456  
Interest expense, net     87,228                                                                         87,228  
Depreciation and amortization     65,610                                                                         65,610  
EBITDA     151,963                                                                         266,294  
Adjustments to EBITDA     114,331       (11,974 )     (75,864 )     1,106       (2,784 )     (6,726 )     (3,325 )     (2,346 )     (4,743 )     (1,270 )     1,090       (7,493 )     0  
Adjusted EBITDA   $ 266,294     $ (11,974 )   $ (75,864 )   $ 1,106     $ (2,784 )   $ (6,726 )   $ (3,325 )   $ (2,346 )   $ (4,743 )   $ (1,270 )   $ 1,090     $ (7,493 )   $ 266,294  


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

          Twelve Months Ended December 31, 2020 EBITDA Adjustments        
    December 31, 2020
GAAP
Basis (as
reported)
    Goodwill, intangibles and long-lived assets impairment (c)     Store
impairment
and
restructuring
charges , Inventory disposal (a, l)
    Gain on debt refinancing (j)     Corporate
development
expenses (e)
    Non-recurring legal settlements     Stock Option
Expense/Non-
Employee Equity
Compensation/
Restricted
stock units
(g,h,i)
    Deferred
Rent (d)
    Other
restructuring,
retention and
severance
    Closed
store
expense (f)
    COVID-
19 (m)
    Foreign
currency
gains
    Other (k)     December 31,
2020
Non-GAAP
basis
 
Net sales   $ 1,850,690                                                                             $ 1,850,690  
Cost of sales     1,369,935             (105,232 )                             (214 )     (4,437 )           (42,952 )           (3,388 )     1,213,712  
Gross Profit     480,755                                                                               636,978  
Wholesale selling expenses     50,121                         (1,840 )                                   (623 )                 47,658  
Retail operating expenses     387,398                                           3,165             (3,556 )     (18,268 )                 368,739  
General and administrative expenses     225,322                         (3,142 )     (7,843 )     (12,174 )     196       (7,667 )     (302 )     (12,000 )                 182,390  
Art and development costs     17,638                                                                               17,638  
(Gain) on sale/leaseback transaction                                                                                    
Store impairment and restructuring charges     22,449             (22,449 )                                                                  
Loss on sale of business     73,948                                                                         (73,948 )      
Goodwill, intangibles and long-lived assets impairment     581,380       (581,380 )                                                                        
(Loss) from operations     (877,501 )                                                                             20,553  
Interest expense, net     77,043                                                                               77,043  
Other expense, net     3,715                         (2,215 )           (1,033 )                             1,058             1,525  
Gain on debt repayment/refinancing     (273,149 )                 273,149                                                              
(Loss) before income taxes     (685,110 )                                                                             (58,015 )
Interest expense, net     77,043                                                                               77,043  
Depreciation and amortization     76,506                                                                               76,506  
EBITDA     (531,561 )                                                                             95,534  
Adjustments to EBITDA     627,095       (581,380 )     (127,681 )     273,149       (7,197 )     (7,843 )     (13,207 )     3,147       (12,104 )     (3,858 )     (73,843 )     1,058       (77,336 )      
Adjusted EBITDA   $ 95,534     $ (581,380 )   $ (127,681 )   $ 273,149     $ (7,197 )   $ (7,843 )   $ (13,207 )   $ 3,147     $ (12,104 )   $ (3,858 )   $ (73,843 )   $ 1,058     $ (77,336 )   $ 95,534  
                                                                                     
* Prior year amounts conformed to current year presentation.  


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

    Three Months Ended
December 31,
    Year Ended
December 31,
   
    2021     2020     2021     2020    
(Dollars in thousands)                          
(Loss) income before income taxes   $ (20,906 )   $ (124,755 )   $ (874 )   $ (685,110 )  
Intangible asset amortization     2,067       2,918       9,075       11,362    
Amortization of deferred financing costs and original issuance discounts     1,259       922       4,516       4,198    
Store impairment and restructuring charges           1,338             30,813   (a)
Goodwill and intangibles impairment     11,974   (c)         11,974   (c)   581,380   (c)
Stock option expense     87   (g)   125       397   (g)   8,643   (g)
Restricted stock units expense—performance based     872   (i)   1,460   (i)   3,773   (i)   1,460   (i)
Non-employee equity based compensation                       1,033   (h)
(Gain) on debt refinancing                       (273,149 )  
Other restructuring charges                 1,967       10,139    
Non-recurring legal settlements           68             7,094    
Loss on sale of assets                 2,642          
Inventory disposal reserve     68,707   (l)   88,358   (l)   69,632   (l)   88,358   (l)
Loss on sale of business           73,948   (k)   3,211   (k)   73,948   (k)
COVID - 19           2,548   (m)   1,270   (m)   73,661   (m)
Adjusted income (loss) before income taxes   $ 64,060     $ 46,930     $ 107,583     $ (66,170 )  
Adjusted income tax (benefit) expense (l)     17,366   (n)   19,476   (n)   29,332   (n)   (16,940 ) (n)
Adjusted net income (loss)     46,694       27,454       78,251       (49,230 )  
                           
Adjusted net income (loss) per common share - diluted   $ 0.40     $ 0.25     $ 0.68     $ (0.49 )  
                           
Weighted-average number of common shares-diluted     115,479,030       111,298,379       115,205,939       100,804,944    
  1. During the years ended December 31, 2020 and 2019, the Company performed a comprehensive review of its store locations aimed at improving the overall productivity of such locations (“store optimization program”) and, after careful consideration and evaluation of the store locations, the Company made the decision to accelerate the optimization of its store portfolio. In January 2020, 20 stores were closed. In the first quarter of 2020, 21 additional stores identified for closure and were closed in the third quarter. These closings provided the Company with capital flexibility to expand into underserved markets. In addition, the Company evaluated the recoverability of long-lived assets at the open stores and recorded an impairment charge associated with the operating lease asset and property, plant and equipment for open stores where sales were affected due to the outbreak of, and local, state and federal governmental responses to, COVID-19. Refer to Note 3 – Store Impairment and Restructuring Charges, of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further detail.
  2. Costs incurred for early lease terminations and a merchandise transformation project to transition and optimize stores to the reduced SKU assortment levels.
  3. In December 2021, the Company announced the closure of a manufacturing facility in New Mexico that will cease operations in February 2022. As a result, the Company recorded charges consisting primarily of equipment and inventory impairments, severance and other costs (see Note 6, Disposition of Assets and Assets and Liabilities Held for Sale of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion). During the year ended December 31, 2020, as a result of a sustained decline in market capitalization, the Company recognized non-cash pre-tax goodwill and intangibles impairment charges. (see Note 4, Goodwill, of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K).
  4. 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.
  5. The acquisition of Ampology’s interest in Kazzam, LLC in an equity transaction. See Note 25, Kazzam LLC., of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion.
  6. Principally charges incurred related to closing underperforming stores.
  7. Represents non-cash charges related to stock options.
  8. Amounts for 2020 principally represents shares of Kazzam awarded to Ampology as compensation for Ampology’s services. See Note 25, Kazzam LLC., of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion.
  9. Non-cash charges for restricted stock units that vest based on service conditions and performance restricted stock units that vest based on service and performance conditions.
  10. The Company recognized net gain on debt repayment in 2021. In 2020, the Company recognized a gain on debt refinancing transactions as described in Note 12 — Long-Term Obligations of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
  11. The Company sold a substantial portion of its international operations. Related to the sale, the Company recorded a loss reserve in 2020 and an additional loss in 2021. (see Note 6, Disposition of Assets and Assets and Liabilities Held for Sale of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion).
  12. As indicated in Note 7 – Inventories, Net, of Item 8, “Financial Statements and Supplementary Data,” in this Annual Report on Form 10-K, the Company continued to make progress in improving inventory levels across its stores and distribution network. Consistent with the strategy of rationalizing in-store SKU count and improving working capital velocity, the Company has updated its seasonal assortment strategy to target higher in-season sell-through of merchandise and reduce annual inventory carry-over. As a result, for inventory not required for future seasons, the Company recorded a reserve for future disposals in 2021 and disposed of and recorded a reserve for future disposals in 2020.
  13. 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.
  14. 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.
SEGMENT INFORMATION
(In thousands, except percentages, unaudited)

    Three Months Ended December 31,
    2021       2020
    Dollars in Thousands     Percentage of Total Revenues   Dollars in Thousands     Percentage of Total Revenues
Net Sales:                            
Wholesale   $ 267,904       38.4   %   $ 247,513       38.2   %
Eliminations     (163,615 )     (23.4 )       (126,697 )     (19.5 )  
Net wholesale     104,289       14.9         120,816       18.6    
Retail     594,019       85.0         527,365       81.4    
Total revenues   $ 698,308       100.0   %   $ 648,181       100.0   %

 

    Fiscal Year Ended December 31,
    2021       2020
    Dollars in Thousands     Percentage of Total Revenues   Dollars in Thousands     Percentage of Total Revenues
Net Sales:                            
Wholesale   $ 990,636       45.6   %   $ 940,228       50.8   %
Eliminations     (589,562 )     (27.2 )       (471,863 )     (25.5 )  
Net wholesale     401,074       18.5         468,365       25.3    
Retail     1,769,986       81.5         1,382,325       74.7    
Total revenues   $ 2,171,060       100.0   %   $ 1,850,690       100.0   %

*Retail net sales include royalties and franchise fees. Prior year amount conformed to current year presentation.

    Three Months Ended December 31,
    2021   2020
    Dollars in
Thousands
    Percentage
of Net Sales
      Dollars in
Thousands
    Percentage
of Net Sales
   
Retail gross profit   $ 215,992       36.4   %   $ 145,115       27.5   %
Wholesale gross profit     (1,092 )     (1.0 )       23,718       19.6    
Total gross profit   $ 214,900       30.8   %   $ 168,833       26.0   %

*Retail net sales include royalties and franchise fees. Prior year amount conformed to current year presentation.

    Fiscal Year Ended December 31,
    2021   2020
    Dollars in
Thousands
    Percentage
of Net Sales
      Dollars in
Thousands
    Percentage
of Net Sales
   
Retail Gross Profit   $ 694,557       39.2   %   $ 406,499       29.4   %
Wholesale Gross Profit     73,499       18.3         74,256       15.9    
Total Gross Profit   $ 768,056       35.4   %   $ 480,755       26.0   %

*Retail gross profit include royalties and franchise fees. Prior year amount conformed to current year presentation.


PARTY CITY HOLDCO INC.
OPERATING METRICS

    Three Months Ended
December 31,
    LTM  
    2021     2020     2021  
                   
Store Count                  
Corporate Stores:                  
Beginning of period     754       739       746  
New stores opened     1       3       10  
Acquired     4       4       10  
Closed                 (7 )
End of period     759       746       759  
Franchise Stores                  
Beginning of period     76       90       85  
New stores opened                
Sold to Party City     (4 )     (4 )     (10 )
Closed           (1 )     (3 )
End of period     72       85       72  
Grand Total     831       831       831  

 

    Three Months Ended
December 31,
  Year Ended
December 31,
    2021   2020   2021   2020
                 
Wholesale Share of Shelf (a)   81.6%   83.1%   81.1%   82.1%
Manufacturing Share of Shelf (b)   20.0%   19.6%   26.7%   26.0%
                 
                 
    Three Months Ended
December 31,
  Year Ended
December 31,
    2021   2020   2021   2020
                 
Brand comparable sales (c)   17.8%   -5.9%   34.2%   -16.5%

(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.


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Source: Party City Holdco Inc.