Total Sales increased 3.1% versus prior year; Comparable Sales Increased 35.9% versus prior year and 0.4% versus Q1 2019
GAAP Net Loss per Share of $0.13 versus a Net Loss of $5.80 in Q1 2020; Adjusted EBITDA of $32.4 million vs $11.9 million in Q1 2020
Cash from Operations Improved $25.2 million versus Q1 2020
ELMSFORD, N.Y., May 10, 2021 (GLOBE NEWSWIRE) -- Party City Holdco Inc. (the “Company” or “PRTY”; NYSE:PRTY) today announced financial results for the quarter ended March 31, 2021.
Brad Weston, Chief Executive Officer of Party City, stated, “We delivered continued strong core category performance and better than expected results in seasonal categories in the first quarter, fueling top and bottom line performance that exceeded expectations. Despite operating in a pandemic impacted environment with fewer in-person celebrations, brand comparable sales increased 0.4% versus 2019. While social gatherings were suppressed for a significant portion of the quarter, we were very encouraged by first quarter results and sales momentum which continued into April. Importantly, we made good progress advancing our strategic building blocks that are improving our relevancy as we continue to inspire joy by making it easy to create unforgettable memories.”
Mr. Weston added, “As we look to the second quarter, we are confident in our overall positioning heading into the summer and graduation season. We are focused on the right priorities to fortify our industry leadership and are poised to capitalize on the opportunities that lie ahead as life begins to return to normal and celebrations gradually resume.”
First Quarter Summary:
- Total revenues were $426.8 million, an increase of 3.1% on a reported basis and 2.7% on a constant currency basis, compared to the first quarter 2020. As the Company closed the previously disclosed sale of a substantial portion of its international operations at the end of January 2021, first quarter 2021 performance included one month of international results versus three months in the prior year period.
- Total Retail sales increased 10.0% on a reported and constant currency basis driven by a 49.3% comparable sales increase in core categories versus the 13 weeks ended April 4, 2020, partially offset by the divestiture of the international retail business and timing of New Year’s Eve.
- The total number of corporate Party City stores was 751 as of March 31, 2021 compared to 757 in the prior year period.
- Brand comparable sales increased 35.9% in the first quarter versus the 13 weeks ended April 4, 2020 and increased 0.4% compared to the 13 weeks ended April 6, 2019.
- Net third-party Wholesale revenues decreased 15.8% on a reported basis or 16.8% in constant currency, driven predominately by the divestiture of a significant portion of our international operations.
- Total gross profit margin increased 735 basis points to 35.7% of net sales. Excluding certain items not indicative of core operating performance, gross profit margin improved 200 basis points to 36.0% of net sales mainly due to favorable product mix and fewer retail sales promotions, partially offset by increased costs for helium and delivery service.
- Operating expenses totaled $152.2 million or $576.5 million lower than the first quarter of 2020. Excluding certain items not indicative of core operating performance, operating expenses totaled $138.8 million, or 32.5% of net sales, a 320-basis point improvement versus prior-year period primarily driven by disciplined expense management and leverage on higher sales.
- Interest expense was $17.2 million during the first quarter of 2021, compared to $25.1 million during the first quarter of 2020 mainly due to lower amounts of debt outstanding.
- Reported GAAP net loss was $14.1 million, or a loss of $0.13 per diluted share.
- Adjusted net loss was $5.4 million, or a loss of $0.05 per diluted share, compared to adjusted net loss of $26.4 million, or a loss of $0.28 per share, in the first quarter of 2020. (See “Non-GAAP Information”)
- Adjusted EBITDA was $32.4 million, versus $11.9 million during the first quarter of 2020. (See “Non-GAAP Information”)
Balance Sheet and Cash Flow Highlights:
As of the end of the first quarter 2021, the Company had $83.8 million in cash and approximately $129.3 million of availability under the ABL Facility, for total liquidity of $213.1 million.
In addition, the principal balance of debt net of cash on March 31, 2021 was $1,303.0 million versus $1,760.4 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, 2021 | ||||||||||||||
| Principal Amount | Net Carrying Amount | Net Carrying Amount | Net Carrying Amount | |||||||||||
| 8.75% Senior Secured First Lien Notes – due 2026 | $ | 750,000 | $ | 730,508 | $ | - | $ | 730,508 | ||||||
| 6.125% Senior Notes – due 2023 | 22,924 | 22,792 | - | 22,792 | ||||||||||
| 6.625% Senior Notes – due 2026 | 92,254 | 91,483 | - | 91,483 | ||||||||||
| First Lien Party City Notes – due 2025 | 161,669 | 202,657 | - | 202,657 | ||||||||||
| First Lien Anagram Notes – due 2025 | 112,979 | - | 150,568 | 150,568 | ||||||||||
| Second Lien Anagram Notes – due 2026 | 86,981 | - | 148,159 | 148,159 | ||||||||||
| Finance lease obligations | 13,687 | 13,687 | - | 13,687 | ||||||||||
| Total long-term obligations | 1,240,494 | 1,061,127 | 298,727 | 1,359,854 | ||||||||||
| Less: current portion | N/A | (1,359 | ) | - | (1,359 | ) | ||||||||
| Long-term obligations, excluding current portion | $ | 1,240,494 | $ | 1,059,768 | $ | 298,727 | $ | 1,358,495 | ||||||
| Loans and notes payable | 146,275 | 146,275 | - | 146,275 | ||||||||||
| Less: Cash | (83,806 | ) | (66,796 | ) | (17,010 | ) | (83,806 | ) | ||||||
| Principal balance net of cash | $ | 1,302,963 | $ | 1,139,247 | $ | 281,717 | $ | 1,420,964 | ||||||
Net cash used in operating activities in the first three months of 2021 was $48.8 million, compared to $74.0 million in the prior-year period, driven primarily by higher net sales, improved operating income and favorable working capital changes. Free cash flowa in the first three months of 2020 was $10.2 million compared to $1.1 million in the prior-year period, driven by higher Adjusted EBITDA, partially offset by higher capital expenditures.
aFree cash flow defined as Adjusted EBITDA less capital expenditures (See “Non-GAAP Financial Information”).
Outlook:
The Company is providing the following fiscal second quarter 2021 outlook. This outlook is subject to potential consumer and marketplace volatility due to the COVID-19 pandemic:
- Total revenue of $475 to $490 million
- Brand comparable sales increase of 92% to 97% compared to second quarter 2020
- Brand comparable sales increase of mid to high single digits compared to second quarter 2019
- GAAP net income of $10 to $20 million with an assumed Q2 tax rate of 27%
- Adjusted EBITDA of $60 to $70 million
The table below sets forth a reconciliation from our second quarter 2021 forecasted GAAP Net Income to our Adjusted EBITDA.
| Q2 2021 | Q2 2021 | |||||
| (in thousands) | High | Low | ||||
| Net Income | $ | 19,929 | $ | 10,439 | ||
| Provision for Income Taxes | 7,371 | 3,861 | ||||
| Interest Expense | 23,600 | 24,600 | ||||
| Depreciation and Amortization Expense | 16,200 | 17,200 | ||||
| EBITDA | $ | 67,100 | $ | 56,100 | ||
| EBITDA Add-Backs | 2,900 | 3,900 | ||||
| Adjusted EBITDA | $ | 70,000 | $ | 60,000 | ||
Conference Call Information
A conference call to discuss the second quarter 2021 financial results is scheduled for today, May 10, 2021, at 8:00 a.m. Eastern Time, and the Company has posted certain supplemental presentation materials to its investor relations website. Investors and analysts interested in participating in the call are invited to dial 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 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. We also evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We calculate constant currency percentages by converting our prior-period local currency financial results using the current period exchange rates and comparing these adjusted amounts to our current period reported results. We also provide net debt leverage, which is calculated by adding Loans and Notes Payable, Current Portion of Long Term Obligations and Long Term Obligations, Excluding Current Portion, subtracting Cash and Cash Equivalents and dividing by Adjusted EBITDA for the trailing twelve month period. 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 its ability to maximize the potential of its vertical model, the ability to drive long-term growth, revenues, brand comparable sales, net income, Adjusted EBITDA, and Adjusted net income. 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; product recalls or product liability; economic slowdown affecting consumer spending and general economic conditions; loss or actions of third party vendors and loss of the right to use licensed material; disruptions at our manufacturing facilities; and the additional risks and uncertainties set forth in “Risk Factors” in Party City’s Annual Report on Form 10-K for the year ended December 31, 2020 and in subsequent reports filed with or furnished to the Securities and Exchange Commission. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, outlook, guidance, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. Except as may be required by any applicable laws, Party City assumes no obligation to publicly update or revise such forward-looking statements, which are made as of the date hereof or the earlier date specified herein, whether as a result of new information, future developments or otherwise.
About Party City
Party City Holdco Inc. is the leading party goods company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party goods globally by revenue. The Company is a popular one-stop shopping destination for party supplies, balloons, and costumes. In addition to being a great retail brand, the Company is a global, world-class organization that combines state-of-the-art manufacturing and sourcing operations, and sophisticated wholesale operations complemented by a multi-channel retailing strategy and e-commerce retail operations. The Company is the leading player in its category, vertically integrated and unique in its breadth and depth. The Company designs, manufactures, sources and distributes party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world. The Company’s retail operations include 833 specialty retail party supply stores (including franchise stores) throughout North America operating under the names Party City and Halloween City, and e-commerce websites, principally through the domain name PartyCity.com.
Source: Party City Holdco Inc.
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data, unaudited)
| March 31, 2021 | December 31, 2020 | March 31, 2020 | ||||||||||
| (Note 2) (Unaudited) | (Note 2) | (Note 2) (Unaudited) | ||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 83,806 | $ | 119,532 | $ | 194,433 | ||||||
| Accounts receivable, net | 81,658 | 90,879 | 116,223 | |||||||||
| Inventories, net | 428,316 | 412,285 | 629,875 | |||||||||
| Prepaid expenses and other current assets | 47,803 | 45,905 | 76,698 | |||||||||
| Income tax receivable | 68,632 | 57,549 | — | |||||||||
| Assets held for sale, net | — | 83,110 | — | |||||||||
| Total current assets | 710,215 | 809,260 | 1,017,229 | |||||||||
| Property, plant and equipment, net | 214,698 | 209,412 | 235,577 | |||||||||
| Operating lease asset | 687,214 | 700,087 | 773,775 | |||||||||
| Goodwill | 659,865 | 661,251 | 665,129 | |||||||||
| Trade names | 383,733 | 384,428 | 394,221 | |||||||||
| Other intangible assets, net | 29,912 | 32,134 | 41,960 | |||||||||
| Other assets, net | 9,832 | 9,883 | 6,904 | |||||||||
| Total assets | $ | 2,695,469 | $ | 2,806,455 | $ | 3,134,795 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Loans and notes payable | $ | 142,859 | $ | 175,707 | $ | 381,422 | ||||||
| Accounts payable | 127,812 | 118,928 | 96,383 | |||||||||
| Accrued expenses | 146,742 | 160,605 | 154,847 | |||||||||
| Liabilities held for sale | — | 68,492 | — | |||||||||
| Current portion of operating lease liability | 150,860 | 176,045 | 153,614 | |||||||||
| Income taxes payable | — | 524 | — | |||||||||
| Current portion of long-term obligations | 1,359 | 13,576 | 98,588 | |||||||||
| Total current liabilities | 569,632 | 713,877 | 884,854 | |||||||||
| Long-term obligations, excluding current portion | 1,358,495 | 1,329,808 | 1,474,854 | |||||||||
| Long-term portion of operating lease liability | 628,217 | 654,729 | 707,734 | |||||||||
| Deferred income tax liabilities, net | 31,036 | 34,705 | 70,943 | |||||||||
| Other long-term liabilities | 33,195 | 22,815 | 16,036 | |||||||||
| Total liabilities | 2,620,575 | 2,755,934 | 3,154,421 | |||||||||
| Commitments and contingencies | ||||||||||||
| Stockholders’ equity: | ||||||||||||
| Common stock (111,258,890, 110,781,613 and 94,491,352 shares outstanding and 122,573,377, 122,061,711 and 121,708,422 shares issued at March 31, 2021, December 31, 2020, March 31, 2020 respectively) | 1,383 | 1,373 | 1,211 | |||||||||
| Additional paid-in capital | 976,037 | 971,972 | 933,174 | |||||||||
| Accumulated deficit | (579,486 | ) | (565,457 | ) | (578,732 | ) | ||||||
| Accumulated other comprehensive income (loss) | 5,134 | (29,916 | ) | (47,947 | ) | |||||||
| Total Party City Holdco Inc. stockholders’ equity before common stock held in treasury | 403,068 | 377,972 | 307,706 | |||||||||
| Less: Common stock held in treasury, at cost (11,314,487, 11,280,098 and 27,217,070 shares at March 31, 2021, December 31, 2020, March 31, 2020, respectively) | (327,388 | ) | (327,182 | ) | (327,170 | ) | ||||||
| Total Party City Holdco Inc. stockholders’ equity | 75,680 | 50,790 | (19,464 | ) | ||||||||
| Noncontrolling interests | (786 | ) | (269 | ) | (162 | ) | ||||||
| Total stockholders’ equity | 74,894 | 50,521 | (19,626 | ) | ||||||||
| Total liabilities and stockholders’ equity | $ | 2,695,469 | $ | 2,806,455 | $ | 3,134,795 | ||||||
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, | ||||||||
| 2021 | 2020 | |||||||
| Net sales* | $ | 426,807 | $ | 414,043 | ||||
| Cost of sales | 274,521 | 296,757 | ||||||
| Gross Profit | 152,286 | 117,286 | ||||||
| Wholesale selling expenses | 9,116 | 15,458 | ||||||
| Retail operating expenses | 88,896 | 88,166 | ||||||
| General and administrative expenses | 46,038 | 65,334 | ||||||
| Art and development costs | 4,971 | 5,322 | ||||||
| Store impairment and restructuring charges | — | 17,728 | ||||||
| Loss on disposal of assets in international operations | 3,211 | — | ||||||
| Goodwill, intangibles and long-lived assets impairment | — | 536,648 | ||||||
| Income (loss) from operations | 54 | (611,370 | ) | |||||
| Interest expense, net | 17,214 | 25,120 | ||||||
| Other expense, net | 427 | 5,676 | ||||||
| (Loss) before income taxes | (17,587 | ) | (642,166 | ) | ||||
| Income tax (benefit) | (3,469 | ) | (100,498 | ) | ||||
| Net (loss) | (14,118 | ) | (541,668 | ) | ||||
| Less: Net (loss) attributable to noncontrolling interests | (54 | ) | (155 | ) | ||||
| Net (loss) attributable to common shareholders of Party City Holdco Inc. | $ | (14,064 | ) | $ | (541,513 | ) | ||
| Net (loss) per share attributable to common shareholders of Party City Holdco Inc.–Basic | $ | (0.13 | ) | $ | (5.80 | ) | ||
| Net (loss) per share attributable to common shareholders of Party City Holdco Inc.–Diluted | $ | (0.13 | ) | $ | (5.80 | ) | ||
| Weighted-average number of common shares-Basic | 110,917,349 | 93,395,609 | ||||||
| Weighted-average number of common shares-Diluted | 110,917,349 | 93,395,609 | ||||||
| Dividends declared per share | $ | — | $ | — | ||||
| Comprehensive income (loss) | $ | 20,937 | $ | (553,881 | ) | |||
| Less: Comprehensive (loss) attributable to noncontrolling interests | (84 | ) | (155 | ) | ||||
| Comprehensive income (loss) attributable to common shareholders of Party City Holdco Inc. | $ | 21,021 | $ | (553,726 | ) | |||
*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)
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows used in operating activities: | ||||||||
| Net (loss) | $ | (14,118 | ) | $ | (541,668 | ) | ||
| Adjustments to reconcile net (loss) to net cash (used in) operating activities: | ||||||||
| Depreciation and amortization expense | 17,944 | 17,752 | ||||||
| Amortization of deferred financing costs and original issuance discounts | 863 | 1,202 | ||||||
| Provision for doubtful accounts | 696 | 1,119 | ||||||
| Deferred income tax benefit | (3,386 | ) | (54,991 | ) | ||||
| Change in operating lease liability/asset | (37,556 | ) | (389 | ) | ||||
| Undistributed loss (income) in equity method investments | 336 | (144 | ) | |||||
| Loss on disposal of assets | 110 | 40 | ||||||
| Loss on disposal of assets in international operations | 3,211 | — | ||||||
| Non-cash adjustment for store impairment and restructuring charges | — | 16,277 | ||||||
| Goodwill, intangibles and long-lived assets impairment | — | 536,648 | ||||||
| Non-employee equity-based compensation** | — | 1,033 | ||||||
| Stock option expense – time – based | 113 | 354 | ||||||
| Restricted stock unit expense – time-based | 352 | 621 | ||||||
| Restricted stock unit – performance-based | 708 | — | ||||||
| Directors – non-cash compensation | 57 | 75 | ||||||
| Net loss on debt repayment | 226 | — | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease in accounts receivable | 2,952 | 27,635 | ||||||
| (Increase) decrease in inventories | (17,565 | ) | 23,205 | |||||
| (Increase) in prepaid expenses and other current assets | (8,768 | ) | (26,661 | ) | ||||
| Increase (decrease) in accounts payable, accrued expenses and income taxes payable | 5,014 | (76,138 | ) | |||||
| Net cash (used in) operating activities | (48,811 | ) | (74,030 | ) | ||||
| Cash flows (used in) investing activities: | ||||||||
| Capital expenditures | (22,184 | ) | (10,726 | ) | ||||
| Proceeds from disposal of property and equipment | — | 7 | ||||||
| Proceeds from sale of international operations, net of cash disposed | 20,556 | — | ||||||
| Net cash (used in) investing activities | (1,628 | ) | (10,719 | ) | ||||
| Cash flows (used in) provided by financing activities: | ||||||||
| Repayment of loans, notes payable and long-term obligations | (792,849 | ) | (3,932 | ) | ||||
| Proceeds from loans, notes payable and long-term obligations | 794,750 | 253,030 | ||||||
| Treasury stock purchases | (206 | ) | (85 | ) | ||||
| Exercise of stock options | 2,855 | — | ||||||
| Debt issuance costs | (21,437 | ) | — | |||||
| Net cash (used in) provided by financing activities | (16,887 | ) | 249,013 | |||||
| Effect of exchange rate changes on cash and cash equivalents | (177 | ) | (4,863 | ) | ||||
| Net (decrease) increase in cash and cash equivalents and restricted cash | (67,503 | ) | 159,401 | |||||
| Change in cash classified within current assets held for sale | 31,628 | — | ||||||
| Cash and cash equivalents and restricted cash at beginning of period | 119,681 | 35,176 | ||||||
| Cash and cash equivalents and restricted cash at end of period* | $ | 83,806 | $ | 194,577 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for interest | $ | 20,309 | $ | 35,927 | ||||
| Cash paid during the period for income taxes, net of refunds | $ | 127 | $ | 11,368 | ||||
*Includes $144 of restricted cash for the three months ended March 31, 2020. There was no restricted cash as of March 31, 2021. The Company records restricted cash in prepaid expenses and other current asset as presented in the consolidated balance sheets at December 31, 2020 and March 31, 2020.
** See Note 17 – Kazzam, LLC of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in the March 31, 2021 Quarterly Report on Form 10-Q 2021.
PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| (Dollars in thousands) | ||||||||
| Net (loss) | $ | (14,118 | ) | $ | (541,668 | ) | ||
| Interest expense, net | 17,214 | 25,120 | ||||||
| Income tax (benefit) | (3,469 | ) | (100,498 | ) | ||||
| Depreciation and amortization | 17,944 | 17,752 | ||||||
| EBITDA | 17,571 | (599,294 | ) | |||||
| Store impairment and restructuring charges (a) | — | 27,761 | ||||||
| Early lease terminations | 3,138 | — | ||||||
| Other restructuring, retention and severance (b) | 2,051 | 3,047 | ||||||
| Goodwill, intangibles and long-lived assets impairment (c) | — | 536,648 | ||||||
| Deferred rent (d) | 1,526 | (1,384 | ) | |||||
| Closed store expense (e) | 1,593 | 1,235 | ||||||
| Foreign currency losses/(gains), net | (539 | ) | 4,255 | |||||
| Stock option expense – time-based | 113 | 354 | ||||||
| Restricted stock unit and restricted cash awards expense – performance-based | 817 | — | ||||||
| Restricted stock units – time-based | 352 | 621 | ||||||
| Non-employee equity-based compensation (f) | — | 1,033 | ||||||
| Undistributed loss (income) in equity method investments | 336 | (144 | ) | |||||
| Corporate development expenses (g) | — | 2,969 | ||||||
| Non-recurring legal settlements/costs | — | 6,321 | ||||||
| COVID - 19 (l) | 615 | 26,180 | ||||||
| Loss on disposal of assets | 3,211 | — | ||||||
| Net loss on debt repayment | 226 | — | ||||||
| Other | 1,409 | 2,272 | ||||||
| Adjusted EBITDA | $ | 32,419 | $ | 11,874 | ||||
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 | Stock Option Expense/Non- Employee Equity Compensation/ Restricted stock units | Deferred Rent (d) | Other restructuring, retention and severance (b) | Closed store expense (e) | COVID- 19 (l) | Foreign currency losses | 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 | |||||||||||||||||||||||||||||||||||||||||||
| Wholesale selling expenses | 9,116 | 9,116 | |||||||||||||||||||||||||||||||||||||||||||
| Retail operating expenses | 88,896 | (1,756 | ) | (1,568 | ) | (1,562 | ) | (590 | ) | (718 | ) | 82,703 | |||||||||||||||||||||||||||||||||
| General and administrative expenses | 46,038 | (1,282 | ) | 42 | (2,052 | ) | (31 | ) | (25 | ) | (650 | ) | 42,041 | ||||||||||||||||||||||||||||||||
| Art and development costs | 4,971 | 4,971 | |||||||||||||||||||||||||||||||||||||||||||
| 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 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 | |||||||||||||||
PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)
| Three Months Ended March 31, 2020 EBITDA Adjustments | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2020 GAAP Basis (as reported) | Goodwill, intangibles and long- lived assets impairment (c) | Store impairment and restructuring charges (a) | Corporate development expenses (h) | Legal | Stock Option Expense/Non- Employee Equity Compensation/ Restricted stock units (f)(g)(i)(m) | Deferred Rent (d) | Other restructuring, retention and severance (b) | Closed store expense (e) | COVID- 19 (l) | Foreign currency gains | Other | March 31, 2020 Non-GAAP basis | ||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 414,043 | $ | 414,043 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | 296,757 | (10,033 | ) | (12,804 | ) | (429 | ) | 273,491 | ||||||||||||||||||||||||||||||||||||||||||||
| Gross Profit | 117,286 | 140,552 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Wholesale selling expenses | 15,458 | (736 | ) | (114 | ) | 14,608 | ||||||||||||||||||||||||||||||||||||||||||||||
| Retail operating expenses | 88,166 | 1,336 | (1,166 | ) | (10,178 | ) | 78,158 | |||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 65,334 | (2,129 | ) | (6,321 | ) | (975 | ) | 48 | (3,047 | ) | (69 | ) | (3,084 | ) | 49,757 | |||||||||||||||||||||||||||||||||||||
| Art and development costs | 5,322 | 5,322 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Store impairment and restructuring charges | 17,728 | (17,728 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill, intangibles and long-lived assets impairment | 536,648 | (536,648 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Loss) from operations | (611,370 | ) | (7,293 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 25,120 | 25,120 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other expense, net | 5,676 | (104 | ) | (1,033 | ) | (4,255 | ) | (1,699 | ) | (1,415 | ) | |||||||||||||||||||||||||||||||||||||||||
| (Loss) before income taxes | (642,166 | ) | (30,998 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 25,120 | 25,120 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 17,752 | 17,752 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| EBITDA | (599,294 | ) | 11,874 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustments to EBITDA | 611,168 | (536,648 | ) | (27,761 | ) | (2,969 | ) | (6,321 | ) | (2,008 | ) | 1,384 | (3,047 | ) | (1,235 | ) | (26,180 | ) | (4,255 | ) | (2,128 | ) | — | |||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 11,874 | $ | (536,648 | ) | $ | (27,761 | ) | $ | (2,969 | ) | $ | (6,321 | ) | $ | (2,008 | ) | $ | 1,384 | $ | (3,047 | ) | $ | (1,235 | ) | $ | (26,180 | ) | $ | (4,255 | ) | $ | (2,128 | ) | $ | 11,874 | ||||||||||||||||
Note: Due to rounding, certain numbers may not add up precisely to the totals provided.
PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED NET INCOME
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| (Dollars in thousands, except per share amounts) | ||||||||
| (Loss) before income taxes | $ | (17,587 | ) | $ | (642,166 | ) | ||
| Intangible asset amortization | 2,477 | 2,866 | ||||||
| Amortization of deferred financing costs and original issuance discounts | 863 | 1,202 | ||||||
| Store impairment and restructuring charges (a) | — | 27,973 | ||||||
| Other restructuring charges (b) | 1,936 | 922 | ||||||
| Goodwill, intangibles and long-lived assets impairment (c) | — | 536,648 | ||||||
| Non-employee equity-based compensation (f) | — | 1,033 | ||||||
| Non-recurring legal settlements/costs | — | 6,321 | ||||||
| Stock option expense – time-based | 113 | 354 | ||||||
| Restricted stock unit expense – performance-based | 817 | — | ||||||
| COVID - 19 (l) | 615 | 26,180 | ||||||
| Loss on disposal of assets | 3,211 | — | ||||||
| Inventory disposals | 764 | — | ||||||
| Adjusted (loss) before income taxes | (6,791 | ) | (38,667 | ) | ||||
| Adjusted income tax (benefit) (h) | (1,382 | ) | (12,284 | ) | ||||
| Adjusted net (loss) | $ | (5,409 | ) | $ | (26,383 | ) | ||
| Adjusted net (loss) per common share – diluted | $ | (0.05 | ) | $ | (0.28 | ) | ||
| Weighted-average number of common shares-diluted | 110,917,349 | 93,395,609 | ||||||
| (a) | The Company performed a comprehensive review of its store locations aimed at improving the overall productivity of such locations (“store optimization program”). After careful consideration and evaluation of the store locations, the Company made the decision to accelerate the optimization of its store portfolio with the closure of stores, which are primarily located in close proximity to other Party City stores. For further detail, refer to Note 3 – Store Impairment and Restructuring Charges of Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in this Quarterly Report on Form 10-Q 2021. |
| (b) | Amounts expensed principally relate to severance due to organizational changes. |
| (c) | As a result of a sustained decline in market capitalization, the Company recognized a non-cash pre-tax goodwill and intangibles impairment charge at March 31, 2020. |
| (d) | The “deferred rent” adjustment reflects the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay. |
| (e) | Charges incurred related to closing and relocating stores in the ordinary course of business. |
| (f) | The acquisition of Ampology’s interest in Kazzam, LLC in an equity transaction. See Note 17 – Kazzam, LLC in Item 1 for further discussion. |
| (g) | Primarily represents costs for Kazzam (see Note 17 – Kazzam, LLC in Item 1 for further discussion). |
| (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. |
| (l) | Represents COVID-19 expenses for employees on temporary furlough for whom the Company provides health benefits; non-payroll expenses including advertising, occupancy and other store expenses. |
PARTY CITY HOLDCO INC.
SEGMENT INFORMATION
(In thousands, except percentages, unaudited)
| Three Months Ended March 31, | ||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||
| Dollars in Thousands | Percentage of Total Revenues | Dollars in Thousands | Percentage of Total Revenues | |||||||||||||||
| Net Sales: | ||||||||||||||||||
| Wholesale | $ | 212,137 | 49.7 | % | $ | 214,798 | 51.9 | % | ||||||||||
| Eliminations | (118,612 | ) | (27.8 | ) | (103,731 | ) | (25.1 | ) | ||||||||||
| Net wholesale | 93,525 | 21.9 | 111,067 | 26.8 | ||||||||||||||
| Retail* | 333,282 | 78.1 | 302,976 | 73.2 | ||||||||||||||
| Total revenues | $ | 426,807 | 100.0 | % | $ | 414,043 | 100.0 | % | ||||||||||
| Three Months Ended March 31, | ||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||
| Dollars in Thousands | Percentage of Net Sales | Dollars in Thousands | Percentage of Net Sales | |||||||||||||||
| Retail Gross Profit | $ | 123,178 | 37.0 | % | $ | 95,943 | 31.7 | % | ||||||||||
| Wholesale Gross Profit | 29,108 | 31.1 | 21,343 | 19.2 | ||||||||||||||
| Total Gross Profit | $ | 152,286 | 35.7 | % | $ | 117,286 | 28.3 | % | ||||||||||
*Includes royalties and franchise fees. Prior year amount conformed to current year presentation.
PARTY CITY HOLDCO INC.
OPERATING METRICS
| Three Months Ended March 31, | LTM | |||||||||||
| 2021 | 2020 | 2021 | ||||||||||
| Store Count | ||||||||||||
| Corporate Stores: | ||||||||||||
| Beginning of period | 746 | 777 | 757 | |||||||||
| New stores opened | 5 | — | 10 | |||||||||
| Acquired | — | — | 6 | |||||||||
| Closed | — | (20 | ) | (22 | ) | |||||||
| End of period | 751 | 757 | 751 | |||||||||
| Franchise Stores | ||||||||||||
| Beginning of period | 85 | 98 | 98 | |||||||||
| New stores opened | — | — | — | |||||||||
| Sold to Party City | — | — | (6 | ) | ||||||||
| Closed | (3 | ) | (1 | ) | (9 | ) | ||||||
| End of period | 82 | 97 | 83 | |||||||||
| Grand Total | 833 | 854 | 834 | |||||||||
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Wholesale Share of Shelf (a) | 81.5% | 81.3% | ||||||
| Manufacturing Share of Shelf (b) | 33.0% | 29.0% | ||||||
(a) Wholesale share of shelf represents the percentage of our retail product cost of sales supplied by our wholesale operations.
(b) Manufacturing share of shelf represents the percentage of our retail product cost of sales manufactured by the company.
(c) Party city brand comparable sales include North American e-commerce sales.