Total Net Sales of $527.4 million; Comparable Sales decreased 5.6% versus prior year and increased 12.2% versus 2019
GAAP Net Income of $162.2 million; Adjusted EBITDA of $45.8 million
ELMSFORD, N.Y., Aug. 08, 2022 (GLOBE NEWSWIRE) -- Party City Holdco Inc. (the “Company” or “PRTY”; NYSE:PRTY) today announced financial results for the quarter ended June 30, 2022.
Brad Weston, Chief Executive Officer of Party City, stated, “Our second quarter topline results were largely as expected as we lapped a strong Q2 last year while cost headwinds, which are predominantly transitory in nature, pressured profitability. We are seeing benefits from the transformation work we have accomplished over the last 2 years, which is evidenced by our strong sales results compared to pre-pandemic levels.”
Mr. Weston added, “For the back half of the year, we continue to expect the supply chain volatility and inflationary pressures to persist and as a result, are revising our full year outlook. Given the continued broader macro pressures, we continue to operate the business with discipline from an expense and capital standpoint. Importantly, all of the progress we’ve made on our strategic initiatives is strengthening our market position, which will serve us well over the near and long-term.”
Second Quarter Summary:
- Total net sales were $527.4 million, a decrease of 1.5% compared to the second quarter 2021 primarily driven by lower retail sales partially offset by higher North American Wholesale sales.
- Total retail sales decreased 4.6% versus second quarter 2021 primarily driven by lower sales of core product in everyday categories and the lapping of strong prior year retail results as well as the current inflationary environment.
- The total number of corporate Party City stores was 756 as of June 30, 2022 compared to 749 in the prior year period.
- Brand comparable sales decreased 5.6% in the 13 weeks ended July 2, 2022 versus the 13 weeks ended July 3, 2021, and increased 12.2% versus the 13 weeks ended June 29, 2019.
- Net third-party wholesale sales increased 13.2% compared to the second quarter of 2021 principally due to higher sales to franchise customers as well as strong performance within our Canadian business.
- Total gross profit margin decreased 680 basis points to 33.7% of net sales. Excluding certain items not indicative of core operating performance, gross profit margin decreased approximately 670 basis points to 34.3% of net sales.a The decrease in both cases was primarily driven by higher input costs from supply chain, raw materials, sourced merchandise, helium and labor.
- Selling, general and administrative expenses totaled $167.3 million or $12.0 million higher than the second quarter of 2021. The increase was primarily driven by impairment charges related to office lease assets and property and equipment and higher labor costs. Excluding certain items not indicative of core operating performance, expenses totaled $151.2 million, or 28.7% of net sales, a 60-basis point increase versus prior-year period. The increase in both cases was due to higher store labor costs. a
- Interest expense was $24.2 million during the second quarter of 2022, compared to $23.1 million during the second quarter of 2022. The increase is driven by higher amounts of net debt outstanding and higher interest rates versus prior-year period.
- Reported GAAP net income was $162.2 million, or $1.42 per diluted share.
- Adjusted net income was $11.5 million, or an income of $0.10 per diluted share, compared to adjusted net income of $34.1 million, or earnings of $0.29 per share, in the second quarter of 2021. a
- Adjusted EBITDA was $45.8 million, a decrease of $40 million versus $85.8 million during the second quarter of 2021. a
a Refer to Reconciliation of 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 second quarter 2022, the Company had total liquidity of $195.9 million consisting of the following:
| Party City Credit Group | Anagram Holdings, LLC | PCHI Consolidated | |||||||||
| (in Thousands) | June 30, 2022 | ||||||||||
| Cash | $ | 12,952 | $ | 26,285 | $ | 39,237 | |||||
| ABL Availability: | |||||||||||
| Borrowing Base | 412,160 | 14,427 | 426,587 | ||||||||
| Less: Letters of Credit Outstanding | 35,440 | — | 35,440 | ||||||||
| Less: Borrowings under the ABL Facility | 234,453 | — | 234,453 | ||||||||
| Total ABL Availability | 142,267 | 14,427 | 156,694 | ||||||||
| Total Liquidity | $ | 155,219 | $ | 40,712 | $ | 195,931 | |||||
The weighted average interest rate for Borrowings under the ABL Facility was 2.88% at June 30, 2022.
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 | |||||||||||||||
| June 30, 2022 | |||||||||||||||||
| (in Thousands) | Principal Amount | Net Carrying Amount | Net Carrying Amount | Net Carrying Amount | |||||||||||||
| Loans and notes payable* | $ | 234,453 | $ | 231,911 | $ | — | $ | 231,911 | |||||||||
| 8.75% Senior Secured First Lien Notes – due 2026 | 750,000 | 734,688 | — | 734,688 | |||||||||||||
| 6.125% Senior Notes – due 2023 | 22,924 | 22,862 | — | 22,862 | |||||||||||||
| 6.625% Senior Notes – due 2026 | 92,254 | 91,663 | — | 91,663 | |||||||||||||
| First Lien Party City Notes – due 2025 | 161,669 | 193,426 | — | 193,426 | |||||||||||||
| First Lien Anagram Notes – due 2025 | 118,699 | — | 148,732 | 148,732 | |||||||||||||
| Second Lien Anagram Notes – due 2026 | 93,613 | — | 144,576 | 144,576 | |||||||||||||
| Finance lease obligations | 12,295 | 12,295 | — | 12,295 | |||||||||||||
| Total debt | 1,485,907 | 1,286,845 | 293,308 | 1,580,153 | |||||||||||||
| Less: Cash | (39,237 | ) | (12,952 | ) | (26,285 | ) | (39,237 | ) | |||||||||
| Total debt net of cash | $ | 1,446,670 | $ | 1,273,893 | $ | 267,023 | $ | 1,540,916 | |||||||||
*Balance consists of ABL Facility.
Net cash used in operating activities in the first six months of 2022 was $99.1 million, compared to net cash provided by operating activities of $13.8 million in the prior year period. The increase in cash used in operating activities is primarily attributable to increased inventory purchases due to timing of seasonal product receipts and higher cost due to freight and raw materials inflation, partially offset by timing of payments related to accounts payable and accrued expenses and lower lease payments as the prior year reflected payment of COVID deferrals. Free cash flowa in the first six months of 2022 was $(0.7) million compared to $77.8 million in the prior year period, with the decrease driven by lower Adjusted EBITDA and increased capital expenditures.
a Free cash flow ($0.7 million) is defined as Adjusted EBITDA ($50.4 million) less capital expenditures per the Condensed Consolidated Statements of Cash Flow ($51.1 million) (See “Non-GAAP Financial Information” and reconciliations below).
2022 Outlook:
The Company is providing the following updated outlook.
- Net sales of $2.150 billion to $2.225 billion or a change of approximately -1% to 2% versus 2021
- Brand comp sales decrease of approximately -4% to -1%
- GAAP net loss of approximately $36 million to $10 million
- Adjusted EBITDA of approximately $170 million to $200 million
- 85 to 100 new Next Generation stores, with a combination of new openings and remodels
- Capital Expenditures of approximately $95 to $105 million or $65 to $75 million net of tenant improvement allowances
The table below sets forth a reconciliation from our 2022 forecasted GAAP Net Income to our Adjusted EBITDA.
| (in thousands) | Low | High | |||||
| GAAP Net Income | $ | (36,000 | ) | $ | (10,000 | ) | |
| Income tax | 12,000 | 16,000 | |||||
| Interest expense | 99,000 | 99,000 | |||||
| Depreciation and Amortization Expense | 68,000 | 68,000 | |||||
| GAAP EBITDA | $ | 143,000 | $ | 173,000 | |||
| EBITDA Add-Backs | 27,000 | 27,000 | |||||
| Adjusted EBITDA | $ | 170,000 | $ | 200,000 | |||
Conference Call Information
A conference call to discuss the second quarter 2022 financial results is scheduled for today, August 8, 2022, at 8:30 a.m. Eastern Time, and the Company has posted certain supplemental presentation materials to its investor relations website. Investors and analysts interested in participating in the call are invited to dial 844-200-6205, access code 255473 (international callers please dial 929-526-1599) approximately 10 minutes prior to the start of the call. The conference call will also be webcast at http://investor.partycity.com/. To listen to the live call, please go to the website at least 15 minutes early to register and download any necessary audio software. The webcast will be accessible for one year after the call.
Website Information
We routinely post important information for investors on the Investor Relations section of our website, http://investor.partycity.com/. We intend to use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document.
Non-GAAP Information
This press release includes non-GAAP measures including, Adjusted Net Third-Party Wholesale Sales, Adjusted Total Gross Profit Margin, Adjusted Selling, General and Administrative Expenses, Adjusted EBITDA and Adjusted Net Income/Loss. We present these non-GAAP financial measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by eliminating items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA: (i) as a factor in determining incentive compensation, (ii) to evaluate the effectiveness of our business strategies and (iii) because our credit facilities use Adjusted EBITDA to measure compliance with certain covenants. The Company has reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in tables accompanying this release.
In addition, we also provide debt principal net of cash, which is calculated by adding Loans and Notes Payable, Current Portion of Long Term Obligations and Long Term Obligations, Excluding Current Portion, subtracting Cash and Cash Equivalents and dividing by Adjusted EBITDA for the trailing twelve month period. We also present free cash flow, which we define as Adjusted EBITDA less capital expenditures. We believe providing these non-GAAP measures provides valuable supplemental information regarding our results of operations and leverage, consistent with how we evaluate our performance.
In evaluating these non-GAAP financial measures, investors should be aware that in the future the Company may incur expenses or be involved in transactions that are the same as or similar to some of the adjustments in this presentation. The Company's presentation of non-GAAP financial measures should not be construed to imply that its future results will be unaffected by any such adjustments. The Company has provided this information as means to evaluate the results of its core operations. Other companies in the Company's industry may calculate these items differently than it does. Each of these measures is not a measure of performance under GAAP and should not be considered as a substitute for the most directly comparable financial measures prepared in accordance with GAAP. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results as reported under GAAP.
Forward-Looking Statements
This press release and the commentary in the conference call to be held today each contains forward-looking statements. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance and include Party City’s expectations regarding net sales, Brand Comparable or Same-Store Sales, net income, Adjusted EBITDA and the related adjustments, and capital expenditures. The forward-looking statements contained in this press release are based on management’s good-faith belief and reasonable judgment based on current information, and these statements are qualified by important risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those forecasted or indicated by such forward-looking statements. These risks and uncertainties include: our ability to compete effectively in a competitive industry; fluctuations in commodity prices; successful implementation of our store growth strategy; decreases in our Halloween sales; product recalls or product liability; continuing changes in general economic conditions, and the impact on consumer confidence and consumer spending, including inflationary pressures; the continuing impact of COVID-19 on our global supply chain, retail store operations and customer demand; labor and material shortages and investments; disruptions to our supply chain, transportation system or increases in transportation costs; the impact of inflation on consumer spending; new interpretations of or changes to current accounting rules; our ability to anticipate consumer preferences and buying trends; dependence on timely introduction and customer acceptance of our merchandise; changes in consumer spending based on weather, political, competitive and other conditions beyond our control; delays in store openings; competition from companies with concepts or products similar to ours; timely and effective sourcing of merchandise from our foreign and domestic vendors and delivery of merchandise through our supply chain to our stores and customers; loss or actions of third party vendors and loss of the right to use licensed material; disruptions at our manufacturing facilities; effective inventory management; our ability to manage customer returns; successful catalog management, including timing, sizing and merchandising; uncertainties in e-marketing, infrastructure and regulation; multi-channel and multi-brand complexities; our ability to introduce new brands and brand extensions; challenges associated with our increasing global presence; dependence on external funding sources for operating capital; disruptions in the financial markets; our ability to control employment, occupancy and other operating costs; our ability to improve our systems and processes; changes to our information technology infrastructure; general political, economic and market conditions and events, including recession, war, conflict or acts of terrorism; the impact of tariffs and our ability to mitigate impacts; and the additional risks and uncertainties set forth in “Risk Factors” in Party City’s Annual Report on Form 10-K for the year ended December 31, 2021 and in subsequent reports filed with or furnished to the Securities and Exchange Commission. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, outlook, guidance, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. Except as may be required by any applicable laws, Party City assumes no obligation to publicly update or revise such forward-looking statements, which are made as of the date hereof or the earlier date specified herein, whether as a result of new information, future developments or otherwise.
About Party City
Party City Holdco Inc. is a leading party goods company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party goods globally by revenue. With hundreds of retail stores filled with thousands of products across the United States, we make it easy for our customers to find the perfect party solution through our assortment of party products, balloons, and costumes for their celebration aided by the support of our party experts both in-store and online. Our retail operations include approximately 825 specialty retail party supply stores (including franchise stores) throughout North America operating under the names Party City and Halloween City, and e-commerce websites which offer rapid, contactless, and same day shipping options (including in-store and at curbside), principally through the domain name PartyCity.com. In addition to our retail operations, we are also one of the largest global designers, manufacturers and distributors of decorated consumer party products, with items found in retail outlets worldwide, including independent party supply stores, mass merchants, grocery retailers, e-commerce merchandisers and dollar stores. We combine state-of-the-art manufacturing and sourcing operations, sophisticated wholesale operations and multi-channel retail and e-commerce retail operations to design, manufacture, source and distribute party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world.
Source: Party City Holdco Inc.
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data, unaudited)
| June 30, 2022 | December 31, 2021 | June 30, 2021 | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 39,237 | $ | 47,914 | $ | 84,452 | ||||||
| Accounts receivable, net | 93,445 | 93,301 | 86,745 | |||||||||
| Inventories, net | 676,731 | 443,295 | 426,128 | |||||||||
| Prepaid expenses and other current assets | 239,865 | 57,656 | 68,363 | |||||||||
| Income tax receivable | 1,499 | 56,317 | 55,421 | |||||||||
| Total current assets | 1,050,777 | 698,483 | 721,109 | |||||||||
| Property, plant and equipment, net | 240,480 | 221,870 | 218,532 | |||||||||
| Operating lease asset | 716,572 | 693,875 | 684,802 | |||||||||
| Goodwill | 664,269 | 664,296 | 660,597 | |||||||||
| Trade names | 383,749 | 383,737 | 383,761 | |||||||||
| Other intangible assets, net | 20,916 | 23,687 | 27,825 | |||||||||
| Other assets, net | 26,931 | 25,952 | 26,193 | |||||||||
| Total assets | $ | 3,103,694 | $ | 2,711,900 | $ | 2,722,819 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Loans and notes payable | $ | 231,911 | $ | 84,181 | $ | 99,933 | ||||||
| Accounts payable | 275,316 | 161,736 | 129,802 | |||||||||
| Accrued expenses | 181,671 | 195,531 | 190,347 | |||||||||
| Current portion of operating lease liability | 116,816 | 116,437 | 136,749 | |||||||||
| Income taxes payable | 9,656 | 10,801 | 2,537 | |||||||||
| Current portion of long-term obligations | 920 | 1,373 | 1,265 | |||||||||
| Total current liabilities | 816,290 | 570,059 | 560,633 | |||||||||
| Long-term obligations, excluding current portion | 1,347,322 | 1,351,189 | 1,358,916 | |||||||||
| Long-term portion of operating lease liability | 677,016 | 655,875 | 625,157 | |||||||||
| Deferred income tax liabilities, net | 21,138 | 29,195 | 37,052 | |||||||||
| Other long-term liabilities | 21,952 | 22,868 | 33,288 | |||||||||
| Total liabilities | 2,883,718 | 2,629,186 | 2,615,046 | |||||||||
| Commitments and contingencies | ||||||||||||
| Stockholders’ equity: | ||||||||||||
| Common stock (112,990,705, 112,170,944 and 111,476,496 shares outstanding and 125,498,610, 124,157,500 and 122,790,983 shares issued at June 30, 2022, December 31, 2021, and June 30, 2021, respectively) | 1,384 | 1,384 | 1,383 | |||||||||
| Additional paid-in capital | 986,307 | 982,307 | 978,167 | |||||||||
| Accumulated deficit | (436,701 | ) | (571,985 | ) | (549,693 | ) | ||||||
| Accumulated other comprehensive income | 3,124 | 3,541 | 6,096 | |||||||||
| Total Party City Holdco Inc. stockholders’ equity before common stock held in treasury | 554,114 | 415,247 | 435,953 | |||||||||
| Less: Common stock held in treasury, at cost (12,507,905, 11,986,556 and 11,314,487 shares at June 30, 2022, December 31, 2021, and June 30, 2021, respectively) | (334,138 | ) | (332,533 | ) | (327,394 | ) | ||||||
| Total Party City Holdco Inc. stockholders’ equity | 219,976 | 82,714 | 108,559 | |||||||||
| Noncontrolling interests | — | — | (786 | ) | ||||||||
| Total stockholders’ equity | 219,976 | 82,714 | 107,773 | |||||||||
| Total liabilities and stockholders’ equity | $ | 3,103,694 | $ | 2,711,900 | $ | 2,722,819 | ||||||
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 June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net sales | $ | 527,449 | $ | 535,746 | $ | 960,425 | $ | 962,553 | ||||||||
| Cost of sales | 349,477 | 318,574 | 644,445 | 593,095 | ||||||||||||
| Gross profit | 177,972 | 217,172 | 315,980 | 369,458 | ||||||||||||
| Selling, general and administrative expenses** | 167,306 | 155,336 | 325,366 | 304,357 | ||||||||||||
| Loss on disposal of assets in international operations | — | — | — | 3,211 | ||||||||||||
| Income (loss) from operations | 10,666 | 61,836 | (9,386 | ) | 61,890 | |||||||||||
| Interest expense, net | 24,184 | 23,116 | 47,579 | 40,330 | ||||||||||||
| Other (income), net | (1,800 | ) | (1,300 | ) | (2,003 | ) | (873 | ) | ||||||||
| (Loss) income before income taxes | (11,718 | ) | 40,020 | (54,962 | ) | 22,433 | ||||||||||
| Income tax (benefit) expense | (173,891 | ) | 10,209 | (190,246 | ) | 6,740 | ||||||||||
| Net income | 162,173 | 29,811 | 135,284 | 15,693 | ||||||||||||
| Less: Net income attributable to noncontrolling interests | — | — | — | (54 | ) | |||||||||||
| Net income attributable to common shareholders of Party City Holdco Inc. | $ | 162,173 | $ | 29,811 | $ | 135,284 | $ | 15,747 | ||||||||
| Net income per share attributable to common shareholders of Party City Holdco Inc. – Basic | $ | 1.44 | $ | 0.27 | $ | 1.20 | $ | 0.14 | ||||||||
| Net income per share attributable to common shareholders of Party City Holdco Inc. – Diluted | $ | 1.42 | $ | 0.26 | $ | 1.18 | $ | 0.14 | ||||||||
| Weighted-average number of common shares – Basic | 112,632,860 | 111,340,295 | 112,519,950 | 111,128,822 | ||||||||||||
| Weighted-average number of common shares – Diluted | 114,604,275 | 116,251,151 | 115,115,172 | 115,499,304 | ||||||||||||
| Dividends declared per share | $ | — | $ | — | $ | — | $ | — | ||||||||
| Comprehensive income | $ | 160,827 | $ | 30,761 | $ | 134,890 | $ | 51,742 | ||||||||
| Less: Comprehensive income attributable to noncontrolling interests | — | — | — | (30 | ) | |||||||||||
| Comprehensive income attributable to common shareholders of Party City Holdco Inc. | $ | 160,827 | $ | 30,761 | $ | 134,890 | $ | 51,772 | ||||||||
| ** Consists of wholesale selling expenses, retail operating expenses, art and development costs and general and administrative expenses, which were reported separately in the prior year. 2022 amounts include impairment charges. | ||||||||||||||||
PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows (used in) provided by operating activities: | ||||||||
| Net income | $ | 135,284 | $ | 15,693 | ||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization expense | 31,606 | 34,860 | ||||||
| Amortization of deferred financing costs and original issuance discounts | 2,566 | 1,937 | ||||||
| Provision for doubtful accounts | 21 | 1,171 | ||||||
| Deferred income tax (benefit) expense | (8,061 | ) | 2,622 | |||||
| Change in operating lease liability/asset | (7,308 | ) | (52,315 | ) | ||||
| Undistributed income in equity method investments | (1,376 | ) | (211 | ) | ||||
| Loss on disposal of assets | 203 | 109 | ||||||
| Loss on disposal of assets in international operations | — | 3,211 | ||||||
| Long-lived assets impairment | 9,983 | — | ||||||
| Stock-based compensation** | 3,977 | 2,887 | ||||||
| Loss on debt refinancing | — | 226 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Increase in accounts receivable | (154 | ) | (2,395 | ) | ||||
| Increase in inventories | (234,939 | ) | (15,191 | ) | ||||
| Increase in prepaid expenses and other current assets | (127,273 | ) | (31,055 | ) | ||||
| Increase in accounts payable, accrued expenses and income taxes payable | 96,338 | 52,228 | ||||||
| Net cash (used in) provided by operating activities | (99,133 | ) | 13,777 | |||||
| Cash flows (used in) investing activities: | ||||||||
| Cash paid in connection with acquisitions, net of cash acquired | (7 | ) | — | |||||
| Capital expenditures | (51,094 | ) | (40,452 | ) | ||||
| Proceeds from disposal of property and equipment | 1,622 | — | ||||||
| Proceeds from sale of international operations, net of cash disposed | — | 20,556 | ||||||
| Net cash (used in) investing activities | (49,479 | ) | (19,896 | ) | ||||
| Cash flows provided by (used in) financing activities: | ||||||||
| Repayment of loans, notes payable and long-term obligations | (25,892 | ) | (836,435 | ) | ||||
| Proceeds from loans, notes payable and long-term obligations | 167,444 | 794,750 | ||||||
| Treasury stock purchases | (1,605 | ) | (212 | ) | ||||
| Exercise of stock options | — | 3,322 | ||||||
| Debt issuance costs | — | (21,437 | ) | |||||
| Net cash provided by (used in) financing activities | 139,947 | (60,012 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents | (12 | ) | 274 | |||||
| Net (decrease) in cash and cash equivalents and restricted cash | (8,677 | ) | (65,857 | ) | ||||
| Change in cash classified within current assets held for sale | — | 31,628 | ||||||
| Cash and cash equivalents and restricted cash at beginning of period* | 48,914 | 119,681 | ||||||
| Cash and cash equivalents and restricted cash at end of period* | $ | 40,237 | $ | 85,452 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for interest expense | $ | 42,501 | $ | 16,594 | ||||
| Cash (received) paid during the period for income taxes, net of refunds | $ | (50,994 | ) | $ | 3,411 | |||
| *Includes $1,000 of restricted cash at June 30, 2022 and December 31, 2021 and June 30, 2021. The Company records restricted cash in Other assets, net as presented in the consolidated balance sheets at June 30, 2022, December 31, 2021 and June 30, 2021. | ||||||||
| ** Stock-based compensation consists of stock-option expense – time-based, restricted stock units – time-based, restricted stock units – performance-based and directors – non-cash compensation, which were shown separately in prior years. | ||||||||
PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA
(Unaudited)
| Three Months Ended June 30, | Six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Net income | $ | 162,173 | $ | 29,811 | $ | 135,284 | $ | 15,693 | ||||||||
| Interest expense, net | 24,184 | 23,116 | 47,579 | 40,330 | ||||||||||||
| Income tax (benefit) expense | (173,891 | ) | 10,209 | (190,246 | ) | 6,740 | ||||||||||
| Depreciation and amortization | 15,746 | 16,916 | 31,606 | 34,860 | ||||||||||||
| EBITDA | 28,212 | 80,052 | 24,223 | 97,623 | ||||||||||||
| Inventory restructuring and early lease terminations (f) | — | 3,499 | — | 6,637 | ||||||||||||
| Other restructuring, retention and severance (a) | 710 | 31 | 710 | 2,082 | ||||||||||||
| Long-lived assets impairment (b) | 7,829 | — | 9,983 | — | ||||||||||||
| Deferred rent (c) | 3,856 | (398 | ) | 6,381 | 1,128 | |||||||||||
| Closed store expense (d) | 1,721 | 1,543 | 2,708 | 3,136 | ||||||||||||
| Foreign currency (gains), net | (247 | ) | (772 | ) | (528 | ) | (1,311 | ) | ||||||||
| Stock-based compensation - employee** | 2,217 | 1,680 | 3,929 | 2,962 | ||||||||||||
| Undistributed loss in equity method investments | (1,686 | ) | (547 | ) | (1,376 | ) | (211 | ) | ||||||||
| Non-recurring legal settlements/costs | 384 | — | 384 | — | ||||||||||||
| Gain on sale of property, plant and equipment | 47 | — | (72 | ) | 111 | |||||||||||
| COVID - 19 (e) | — | 655 | — | 1,270 | ||||||||||||
| Inventory disposal reserve | 810 | — | 1,431 | — | ||||||||||||
| Loss on sale of business | — | — | — | 3,211 | ||||||||||||
| Net loss on debt repayment (g) | — | — | — | 226 | ||||||||||||
| Other | 1,953 | 90 | 2,637 | 1,388 | ||||||||||||
| Adjusted EBITDA | $ | 45,806 | $ | 85,833 | $ | 50,410 | $ | 118,252 | ||||||||
| Adjusted EBITDA Margin | 8.7 | % | 16.0 | % | 5.2 | % | 12.3 | % | ||||||||
| ** Stock-based compensation consists of stock-option expense – time-based, restricted stock units – time-based and restricted stock units – performance-based, which were shown separately in prior years. | ||||||||||||||||
PARTY CITY HOLDCO INC
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)
| Three Months Ended June 30, 2022 EBITDA Adjustments | ||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2022 GAAP Basis (as reported) | Long-lived assets impairment (b) | Inventory disposal reserve | Legal | Stock-based compensation - employee** | Deferred rent (c) | Other restructuring, retention and severance (a) | Closed store expense (d) | Foreign currency (gains), net | Other | June 30, 2022 Non-GAAP basis | ||||||||||||||||||||||||||||||||||
| Net sales | $ | 527,449 | $ | 527,449 | ||||||||||||||||||||||||||||||||||||||||
| Cost of sales | 349,477 | (810 | ) | (2,180 | ) | 346,487 | ||||||||||||||||||||||||||||||||||||||
| Gross profit | 177,972 | 180,962 | ||||||||||||||||||||||||||||||||||||||||||
| Selling, General and administrative expenses** | 167,306 | (7,829 | ) | (384 | ) | (2,217 | ) | (1,676 | ) | (710 | ) | (1,721 | ) | (1,572 | ) | 151,197 | ||||||||||||||||||||||||||||
| Income from operations | 10,666 | 29,765 | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 24,184 | (376 | ) | 23,808 | ||||||||||||||||||||||||||||||||||||||||
| Other (income) expense, net | (1,800 | ) | 247 | 1,634 | 81 | |||||||||||||||||||||||||||||||||||||||
| (Loss) income before income taxes | (11,718 | ) | 5,876 | |||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 24,184 | 24,184 | ||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 15,746 | 15,746 | ||||||||||||||||||||||||||||||||||||||||||
| EBITDA | 28,212 | 45,806 | ||||||||||||||||||||||||||||||||||||||||||
| Adjustments to EBITDA | 17,594 | (7,829 | ) | (810 | ) | (384 | ) | (2,217 | ) | (3,856 | ) | (710 | ) | (1,721 | ) | 247 | (314 | ) | — | |||||||||||||||||||||||||
| Adjusted EBITDA | $ | 45,806 | $ | (7,829 | ) | $ | (810 | ) | $ | (384 | ) | $ | (2,217 | ) | $ | (3,856 | ) | $ | (710 | ) | $ | (1,721 | ) | $ | 247 | $ | (314 | ) | $ | 45,806 | ||||||||||||||
| ** Consists of wholesale selling expenses, retail operating expenses, art and development costs and general and administrative expenses, which were reported separately in the prior year. 2022 includes impairment charges. | ||||||||||||||||||||||||||||||||||||||||||||
PARTY CITY HOLDCO INC
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)
| Three Months Ended June 30, 2021 EBITDA Adjustments | ||||||||||||||||||||||||||||||||||||||||||||
June 30, 2021 GAAP Basis (as reported) | Long- lived assets impairment (b) | Inventory restructuring and early lease terminations (f) | Stock- based compensation - employee** | Deferred rent (c) | Other restructuring, retention and severance (a) | Closed store expense (d) | COVID - 19 (e) | Foreign currency (gains), net | Other | June 30, 2021 Non- GAAP basis | ||||||||||||||||||||||||||||||||||
| Net sales | $ | 535,746 | $ | 535,746 | ||||||||||||||||||||||||||||||||||||||||
| Cost of sales | 318,574 | (2,312 | ) | 316,262 | ||||||||||||||||||||||||||||||||||||||||
| Gross profit | 217,172 | 219,484 | ||||||||||||||||||||||||||||||||||||||||||
| Selling, General and administrative expenses** | 155,336 | (1,187 | ) | (1,680 | ) | 398 | (31 | ) | (1,543 | ) | (655 | ) | (39 | ) | 150,599 | |||||||||||||||||||||||||||||
| (Loss) from operations | 61,836 | 68,885 | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 23,116 | -51 | 23,065 | |||||||||||||||||||||||||||||||||||||||||
| Other (income) expense, net | (1,300 | ) | 772 | 547 | 19 | |||||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | 40,020 | 45,801 | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 23,116 | 23,116 | ||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 16,916 | 16,916 | ||||||||||||||||||||||||||||||||||||||||||
| EBITDA | 80,052 | 85,833 | ||||||||||||||||||||||||||||||||||||||||||
| Adjustments to EBITDA | 5,781 | — | (3,499 | ) | (1,680 | ) | 398 | (31 | ) | (1,543 | ) | (655 | ) | 772 | 457 | — | ||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 85,833 | $ | — | $ | (3,499 | ) | $ | (1,680 | ) | $ | 398 | $ | (31 | ) | $ | (1,543 | ) | $ | (655 | ) | $ | 772 | $ | 457 | $ | 85,833 | |||||||||||||||||
| ** Consists of wholesale selling expenses, retail operating expenses, art and development costs and general and administrative expenses, which were reported separately in the prior year. | ||||||||||||||||||||||||||||||||||||||||||||
PARTY CITY HOLDCO INC
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)
| Six Months Ended June 30, 2022 EBITDA Adjustments | ||||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2022 GAAP Basis (as reported) | Long- lived assets impairment (b) | Inventory disposal reserve | Gain on sale of property, plant and equipment | Legal | Stock- based compensation - employee** | Deferred rent (c) | Other restructuring, retention and severance (a) | Closed store expense (d) | Foreign currency (gains), net | Other | March 31, 2022 Non- GAAP basis | |||||||||||||||||||||||||||||||||||||
| Net sales | $ | 960,425 | $ | 960,425 | ||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | 644,445 | (1,431 | ) | (4,197 | ) | 638,817 | ||||||||||||||||||||||||||||||||||||||||||
| Gross profit | 315,980 | 321,608 | ||||||||||||||||||||||||||||||||||||||||||||||
| Selling, General and administrative expenses** | 325,366 | (9,983 | ) | 119 | (384 | ) | (3,929 | ) | (2,184 | ) | (710 | ) | (2,708 | ) | (2,220 | ) | 303,367 | |||||||||||||||||||||||||||||||
| (Loss) from operations | (9,386 | ) | 18,241 | |||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 47,579 | (416 | ) | 47,163 | ||||||||||||||||||||||||||||||||||||||||||||
| Other (income) expense, net | (2,003 | ) | 528 | 1,328 | (147 | ) | ||||||||||||||||||||||||||||||||||||||||||
| (Loss) before Income Taxes | (54,962 | ) | (28,775 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 47,579 | 47,579 | ||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 31,606 | 31,606 | ||||||||||||||||||||||||||||||||||||||||||||||
| EBITDA | 24,223 | 50,410 | ||||||||||||||||||||||||||||||||||||||||||||||
| Adjustments to EBITDA | 26,187 | (9,983 | ) | (1,431 | ) | 119 | (384 | ) | (3,929 | ) | (6,381 | ) | (710 | ) | (2,708 | ) | 528 | (1,308 | ) | — | ||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 50,410 | $ | (9,983 | ) | $ | (1,431 | ) | $ | 119 | $ | (384 | ) | $ | (3,929 | ) | $ | (6,381 | ) | $ | (710 | ) | $ | (2,708 | ) | $ | 528 | $ | (1,308 | ) | $ | 50,410 | ||||||||||||||||
| ** Consists of wholesale selling expenses, retail operating expenses, art and development costs and general and administrative expenses, which were reported separately in the prior year. 2022 includes impairment charges. | ||||||||||||||||||||||||||||||||||||||||||||||||
PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)
| Six Months Ended June 30, 2021 EBITDA Adjustments | |||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2021 GAAP Basis (as reported) | Inventory restructuring and early lease terminations (f) | Net loss on debt repayment (g) | Stock-based compensation - employee** | Deferred rent (c) | Other restructuring, retention and severance (a) | Closed store expense (d) | COVID - 19 (e) | Foreign currency loss | Other | March 31, 2021 Non-GAAP basis | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 962,553 | $ | 962,553 | |||||||||||||||||||||||||||||||||||||||||
| Cost of sales | 593,095 | (3,694 | ) | 124 | 589,525 | ||||||||||||||||||||||||||||||||||||||||
| Gross profit | 369,458 | 373,028 | |||||||||||||||||||||||||||||||||||||||||||
| Selling, General and administrative expenses** | 304,357 | (2,943 | ) | (2,962 | ) | (1,128 | ) | (2,082 | ) | (3,136 | ) | (1,270 | ) | (1,407 | ) | 289,429 | |||||||||||||||||||||||||||||
| Loss on disposal of assets in international operations | 3,211 | (3,211 | ) | — | |||||||||||||||||||||||||||||||||||||||||
| Income from operations | 61,890 | 83,599 | |||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 40,330 | (105 | ) | 40,225 | |||||||||||||||||||||||||||||||||||||||||
| Other (income) expense, net | (873 | ) | (226 | ) | 1,311 | 100 | 312 | ||||||||||||||||||||||||||||||||||||||
| (Loss) before income taxes | 22,433 | 43,062 | |||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 40,330 | 40,330 | |||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 34,860 | 34,860 | |||||||||||||||||||||||||||||||||||||||||||
| EBITDA | 97,623 | 118,252 | |||||||||||||||||||||||||||||||||||||||||||
| Adjustments to EBITDA | 20,629 | (6,637 | ) | (226 | ) | (2,962 | ) | (1,128 | ) | (2,082 | ) | (3,136 | ) | (1,270 | ) | 1,311 | (4,499 | ) | — | ||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 118,252 | $ | (6,637 | ) | $ | (226 | ) | $ | (2,962 | ) | $ | (1,128 | ) | $ | (2,082 | ) | $ | (3,136 | ) | $ | (1,270 | ) | $ | 1,311 | $ | (4,499 | ) | $ | 118,252 | |||||||||||||||
| ** Consists of wholesale selling expenses, retail operating expenses, art and development costs and general and administrative expenses, which were reported separately in the prior year. | |||||||||||||||||||||||||||||||||||||||||||||
PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED NET INCOME
(Unaudited)
| Three Months Ended June 30, | Six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||||||
| (Loss) income before income taxes | $ | (11,718 | ) | $ | 40,020 | $ | (54,962 | ) | $ | 22,433 | ||||||
| Intangible asset amortization | 1,528 | 2,354 | 3,072 | 4,831 | ||||||||||||
| Amortization of deferred financing costs and original issuance discounts | 1,295 | 1,074 | 2,566 | 1,937 | ||||||||||||
| Other restructuring, retention and severance (a) | 710 | 31 | 710 | 1,967 | ||||||||||||
| Long-lived assets impairment (b) | 7,829 | 9,983 | — | |||||||||||||
| Non-recurring legal settlements/costs | 384 | — | 384 | — | ||||||||||||
| Stock option expense | 83 | 104 | 168 | 217 | ||||||||||||
| Restricted stock unit and restricted cash awards expense – performance-based | 744 | 1,154 | 1,313 | 1,971 | ||||||||||||
| COVID - 19 (e) | — | 655 | — | 1,270 | ||||||||||||
| Loss on sale of business | — | — | — | 3,211 | ||||||||||||
| Inventory disposal reserve | 810 | 162 | 1,431 | 926 | ||||||||||||
| Adjusted income (loss) before income taxes | 1,665 | 45,554 | (35,335 | ) | 38,763 | |||||||||||
| Adjusted income tax (benefit) expense (h) | (9,841 | ) | 11,446 | (22,162 | ) | 10,064 | ||||||||||
| Adjusted net income (loss) | $ | 11,506 | $ | 34,108 | $ | (13,173 | ) | $ | 28,699 | |||||||
| Adjusted net income (loss) per common share – diluted | $ | 0.10 | $ | 0.29 | $ | (0.12 | ) | $ | 0.25 | |||||||
| Weighted-average number of common shares – diluted | 114,604,275 | 116,251,151 | 112,519,950 | 115,499,304 | ||||||||||||
(a) Amounts expensed principally relate to severance due to one-time organizational changes.
(b) In December 2021, the Company announced the closure of a manufacturing facility in New Mexico that ceased operations in February 2022. As a result, the Company recorded related shutdown charges. In addition, during the three months ended June 30, 2022, the Company recorded an impairment charge related to certain lease assets and property and equipment. See Note 3, Disposition of Assets and Lease-Related Impairments in Item 1, “Condensed Consolidated Financial Statements (Unaudited)” in the Quarterly Report on Form 10-Q).
(c) The “deferred rent” adjustment reflects the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay.
(d) Charges incurred related to closing and relocating stores in the ordinary course of business.
(e) Represents COVID-19 expenses for employees on temporary furlough for whom the Company provides health benefits; non-payroll expenses including advertising, occupancy and other store expenses.
(f) Costs incurred for early lease terminations and a merchandise transformation project to transition and optimize stores to the reduced SKU assortment levels.
(g) The Company recognized net gain on debt repayment in 2021.
(h) Represents income tax expense/benefit after excluding the specific tax impacts for each of the pre-tax adjustments. The tax impacts for each of the adjustments were determined by applying to the pre-tax adjustments the effective income tax rates for the specific legal entities in which the adjustments were recorded.
PARTY CITY HOLDCO INC.
SEGMENT INFORMATION
(In thousands, except percentages, unaudited)
| Three Months Ended June 30, | ||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||
| Dollars in Thousands | Percentage of Net sales | Dollars in Thousands | Percentage of Net sales | |||||||||||||||
| Net sales: | ||||||||||||||||||
| Wholesale | $ | 303,577 | 57.6 | % | $ | 230,961 | 43.1 | % | ||||||||||
| Eliminations | (199,606 | ) | (37.8 | ) | (139,027 | ) | (26.0 | ) | ||||||||||
| Net wholesale | 103,971 | 19.7 | 91,934 | 17.2 | ||||||||||||||
| Retail | 423,478 | 80.3 | 443,812 | 82.8 | ||||||||||||||
| Total net sales | $ | 527,449 | 100.0 | % | $ | 535,746 | 100.0 | % | ||||||||||
| Six months ended June 30, | ||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||
| Dollars in Thousands | Percentage of Net sales | Dollars in Thousands | Percentage of Net sales | |||||||||||||||
| Net sales: | ||||||||||||||||||
| Wholesale | $ | 543,257 | 56.6 | % | $ | 443,098 | 46.0 | % | ||||||||||
| Eliminations | (347,261 | ) | (36.2 | ) | (257,639 | ) | (26.8 | ) | ||||||||||
| Net wholesale | 195,996 | 20.4 | 185,459 | 19.3 | ||||||||||||||
| Retail | 764,429 | 79.6 | 777,094 | 80.7 | ||||||||||||||
| Total net sales | $ | 960,425 | 100.0 | % | $ | 962,553 | 100.0 | % | ||||||||||
| Three Months Ended June 30, | ||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||
| Dollars in Thousands | Percentage of Net Sales | Dollars in Thousands | Percentage of Net Sales | |||||||||||||||
| Retail gross profit | $ | 158,152 | 37.3 | % | $ | 193,565 | 43.6 | % | ||||||||||
| Wholesale gross profit | 19,820 | 19.1 | 23,607 | 25.7 | ||||||||||||||
| Total gross profit | $ | 177,972 | 33.7 | % | $ | 217,172 | 40.5 | % | ||||||||||
| Six months ended June 30, | ||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||
| Dollars in Thousands | Percentage of Net Sales | Dollars in Thousands | Percentage of Net Sales | |||||||||||||||
| Retail gross profit | $ | 271,518 | 35.5 | % | $ | 316,743 | 40.8 | % | ||||||||||
| Wholesale gross profit | 44,462 | 22.7 | 52,715 | 28.4 | ||||||||||||||
| Total gross profit | $ | 315,980 | 32.9 | % | $ | 369,458 | 38.4 | % | ||||||||||
PARTY CITY HOLDCO INC.
OPERATING METRICS
| Six Months ended June, 30 | Last 12 Months | |||||||||||
| 2022 | 2021 | |||||||||||
| Store Count | ||||||||||||
| Corporate Stores: | ||||||||||||
| Beginning of period | 759 | 746 | 749 | |||||||||
| New stores opened | 2 | 5 | 7 | |||||||||
| Acquired | 10 | |||||||||||
| Closed | (5 | ) | (2 | ) | (10 | ) | ||||||
| End of period | 756 | 749 | 756 | |||||||||
| Franchise Stores | ||||||||||||
| Beginning of period | 72 | 85 | 82 | |||||||||
| New stores opened | — | — | — | |||||||||
| Sold to Party City | — | — | (10 | ) | ||||||||
| Closed | (2 | ) | (3 | ) | (2 | ) | ||||||
| End of period | 70 | 82 | 70 | |||||||||
| Grand Total | 826 | 831 | 826 | |||||||||
| Three months ended June 30, | ||||||
| 2022 | 2021 | |||||
| Wholesale Share of Shelf (a) | 77.7% | 81.0% | ||||
| Manufacturing Share of Shelf (b) | 30.1% | 30.7% | ||||
| Three months ended June 30, | ||||||
| 2022 | 2021 | |||||
| Brand comparable sales (c) | -5.6% | 118.3% | ||||
(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.
