Party City Holdco Inc. (the “Company” or “PRTY”; NYSE:PRTY) today announced financial results for the quarter and year ended December 31, 2020.  

Brad Weston, Chief Executive Officer of Party City, stated, “We are very pleased with how our organization navigated 2020, swiftly pivoting to meet the evolving needs of our customers, all while prioritizing the health and safety of both our associates and our customers during this pandemic. Throughout the year, we made important strides on our five strategic initiatives, innovating and elevating our customer experience while also significantly improving our financial position and flexibility with our actions to reduce debt and extend maturities. I am extremely proud of all that has been accomplished thus far and the hard work and commitment demonstrated by the entire team as we continue to transform the business.”

Mr. Weston continued, “We enter 2021 in a substantially stronger position, armed with greater consumer insights and a solid foundation to build upon as we further our mission to deliver The Party Platform by advancing the building blocks that we put in place in 2020. We remain intensely focused on our customer and more effectively operating and leveraging our unique North American vertical model as we continue our transformation and further strengthen our industry leadership position.”

Fourth Quarter Summary:

  • Total revenues were $648.2 million, a decrease of 11.4% on a reported basis and 11.7% on a constant currency basis
  • Total Retail sales decreased 8.2% on a reported and 8.3% constant currency basis, impacted by closures related to our store optimization program and the impact of COVID-19, offset partially by the benefit from the 53rd week
  • The total number of corporate Party City stores was 746 as of December 31, 2020 compared to 777 a year ago.
  • Brand comparable sales for the 14 weeks ended January 2, 2021 versus 14 weeks ended January 4, 2020 decreased 5.9% due to the impact of COVID-19, especially on seasonal celebrations.
  • The Company’s Retail segment included a 53rd week of operations in the fourth quarter and full year, which contributed approximately $40 million to revenue, approximately $12 million to Adjusted EBITDA and approximately $0.08 to adjusted diluted earnings per share (See "Non-GAAP Financial Information").
  • North American digitally enabled sales increased 27.1% including BOPIS, curbside pickup, and delivery.
  • Net third-party Wholesale revenues decreased 23.0% or a decrease of 24.0% in constant currency, driven by lower third-party sales including softer franchise store performance, and the impact of international COVID-related restrictions.
  • Total gross profit margin decreased 1,454 basis points to 25.7% of net sales driven primarily by a year-end seasonal inventory disposal of $88.3 million, which aligned inventories to the Company’s new seasonal assortment strategy of targeting higher in-season sell-through of merchandise and reducing annual inventory carry-over. Excluding certain items not indicative of core operating performance, gross profit margin decreased 50 basis points to 39.7% of net sales mainly due to deleverage on occupancy costs.
  • Operating expenses totaled $281.1 million or $242.4 million lower than the fourth quarter of 2019. Excluding certain items not indicative of core operating performance, operating expenses totaled $200.5 million, or 31.1% of revenue, a reduction of $4.8 million compared to the fourth quarter of 2019, primarily driven by cost management to reflect lower revenues and reduced retail store count.
  • Interest expense was $13.1 million during the fourth quarter of 2020, compared to $26.0 million during the fourth quarter of 2019 mainly due to lower amount of debt outstanding.
  • Reported GAAP net loss was $96.4 million, or a loss of $(0.88) per diluted share.
  • Adjusted net income was $27.5 million, or $0.25 per diluted share, compared to adjusted net income of $47.8 million, or $0.51 per share, in the fourth quarter of 2019. (See “Non-GAAP Financial Information”)
  • Adjusted EBITDA was $77.3 million, versus $119.5 million during the fourth quarter of 2019. (See “Non-GAAP Financial Information”)

Full Year Summary:

  • Total revenues were $1.851 billion, a decrease of 21.2% on a reported basis and a decrease of 21.3% on a constant currency basis
  • Total Retail sales decreased 21.1% on both a reported and constant currency basis, due to the COVID-19 pandemic, with a brand comparable sales decline of 16.5%
  • 2nd half 2020 Brand comparable sales decreased 0.5%
  • North American digitally enabled sales increased 35.4% including BOPIS, curbside pickup, and delivery
  • Net third-party Wholesale revenues decreased 21.6% on a reported basis and 21.7% on a constant currency basis.
  • Total gross profit margin decreased 1,017 basis points to 25.7% of net sales. Excluding certain items not indicative of core operating performance, gross profit margin decreased 290 basis points to 34.2% of net sales mainly due to deleverage on occupancy costs.
  • Operating expenses totaled $1.358 billion. Excluding certain items not indicative of core operating performance, operating expenses totaled $616.4 million, or 33.4% of revenue, a reduction of $82.0 million compared to 2019, primarily due to lower retail operating expenses as a result of the lower store count, lower Wholesale selling expenses and the temporary benefits from cost cutting related to the pandemic.
  • Interest expense was $77.0 million during 2020, compared to $114.9 million during the 2019.
  • Reported GAAP net loss was $528.5 million, or $(5.24) per share.
  • Adjusted net loss was $49.2 million, or a loss of $0.49 per diluted share compared to adjusted net income of $43.4 million, or $0.46 per share, in 2019. (See “Non-GAAP Financial Information”)
  • Adjusted EBITDA was $95.5 million, versus $269.2 million during 2019. (See “Non-GAAP Financial Information”)

Balance Sheet Highlights:

As of the end of 2020, the Company had $119.5 million in cash and approximately $176.5 million of availability under the ABL Facility, for total liquidity of $296.1 million.

In addition, the principal balance of debt net of cash on December 31, 2020 was $1,253.6 million versus $1,684.8 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 shows the bridge from the balance sheet debt to the principal balance of debt:

                         
          Party City Credit Group     Anagram Holdings, LLC     PCHI Consolidated  
  December 31, 2020  
  PrincipalAmount     Net CarryingAmount     Net CarryingAmount     Net CarryingAmount  
Term Loan Credit Agreement $ 694,220     $ 690,165     $ -     $ 690,165  
6.125% Senior Notes – due 2023   22,924       22,779       -       22,779  
6.625% Senior Notes – due 2026   107,254       106,315       -       106,315  
First Lien Party City Notes   161,669       206,775       -       206,775  
First Lien Anagram Notes   110,000       -       151,335       151,335  
Second Lien Anagram Notes   84,687       -       152,032       152,032  
Finance lease obligations   13,983       13,983       -       13,983  
Total long-term obligations   1,194,737       1,040,017       303,367       1,343,384  
Less: current portion   N/A       (13,576 )     -       (13,576 )
Long-term obligations, excluding current portion $ 1,194,737     $ 1,026,441     $ 303,367     $ 1,329,808  
Loans and notes payable   178,436       178,436       -       178,436  
Less: Cash   (119,532 )     (95,201 )     (24,331 )     (119,532 )
Principal balance net of cash $ 1,253,641     $ 1,109,676     $ 279,036     $ 1,388,712  
                               

Subsequent Events:

As previously announced, subsequent to year end, the Company completed an offering by its wholly-owned subsidiary Party City Holdings Inc. (“PCHI”) of $750 million aggregate principal amount of 8.75% senior secured notes due 2026 (the “Notes”).

The Company intends to use the net proceeds from the offering to repay all outstanding borrowings under its term loan facility maturing 2022, to pay related fees and expenses and for general corporate purposes, which may include debt repurchases.   As a result, the Company’s next material debt maturities are in July 2025.

In January 2021, the Company closed the previously disclosed sale of a substantial portion of its international operations.

Outlook:

Due to the continued uncertainty regarding the ongoing impacts of the COVID-19 pandemic and the associated complexity of forecasting, the Company is providing select annual 2021 guidance for financial measures that it believes it can reasonably forecast including interest expense, capital expenditures and store openings and closures.

  • FY 2021 Interest expense of approximately $90 to $100 million
  • FY 2021 Capital expenditures of approximately $70 to $80 million
  • FY 2021 10 Net new stores (15 new openings and 5 closures)

The Company is providing the following fiscal first quarter 2021 outlook. This outlook is subject to potential consumer and marketplace volatility due to the COVID-19 pandemic:

  • Total revenue of $397 to $410 million
  • Brand comparable sales increase of 26% to 31% compared to first quarter 2020*
  • GAAP net loss of $24 to $16 million with an assumed Q1 tax rate of 25%
  • Adjusted EBITDA of $10 to $17 million

* Represents comparable sales for the 13 weeks ended April 3, 2021 compared to the 13 weeks ended April 4, 2020. On a fiscal or unshifted basis, brand comparable sales for the 13 weeks ended April 3, 2021 compared to last year’s fiscal quarter ended March 28th is expected to increase in the range of 9 – 14%.

Conference Call Information

A conference call to discuss the fourth quarter 2020 financial results is scheduled for today, March 11, 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 a means to evaluate the results of its core operations. Other companies in the Company's industry may calculate these items differently than it does. Each of these measures is not a measure of performance under GAAP and should not be considered as a substitute for the most directly comparable financial measures prepared in accordance with GAAP. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results as reported under GAAP.

Forward-Looking Statements

This press release and the commentary in the conference call to be held today each contains forward-looking statements. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance 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 approximately 830 specialty retail party supply stores (including franchise stores) throughout North America operating under the names Party City and Halloween City, and e-commerce websites, principally through the domain name PartyCity.com.

             
PARTY CITY HOLDCO INC.            
CONSOLIDATED BALANCE SHEETS            
(In thousands, except share data, unaudited)            
    December 31, 2020     December 31, 2019  
ASSETS                
Current assets:                
Cash and cash equivalents   $ 119,532     $ 34,917  
Accounts receivable, net     90,879       149,109  
Inventories, net     412,285       658,419  
Prepaid expenses and other current assets     45,905       51,685  
Income tax receivable     57,549        
Assets held for sale, net     83,110        
Total current assets     809,260       894,130  
Property, plant and equipment, net     209,412       243,572  
Operating lease asset     700,087       802,634  
Goodwill     661,251       1,072,330  
Trade names     384,428       530,320  
Other intangible assets, net     32,134       45,060  
Other assets, net     9,883       7,273  
Total assets   $ 2,806,455     $ 3,595,319  
LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:                
Loans and notes payable   $ 175,707     $ 128,806  
Accounts payable     118,928       152,300  
Accrued expenses     160,605       150,921  
Liabilities held for sale     68,492        
Current portion of operating lease liability     176,045       155,471  
Income taxes payable     524       35,905  
Current portion of long-term obligations     13,576       71,524  
Total current liabilities     713,877       694,927  
Long-term obligations, excluding current portion     1,329,808       1,503,987  
Long-term portion of operating lease liability     654,729       720,735  
Deferred income tax liabilities     34,705       126,081  
Other long-term liabilities     22,815       16,517  
Total liabilities     2,755,934       3,062,247  
Redeemable securities           3,351  
Commitments and contingencies                
Stockholders’ equity:                
Common stock (110,781,613 and 94,461,576 shares outstanding and    122,061,711 and 121,662,540 shares issued at December 31, 2020 and    December 31, 2019, respectively)     1,373       1,211  
Additional paid-in capital     971,972       928,573  
Retained (deficit) earnings     (565,457 )     (37,219 )
Accumulated other comprehensive loss     (29,916 )     (35,734 )
Total Party City Holdco Inc. stockholders’ equity before common stock    held in treasury     377,972       856,831  
Less: Common stock held in treasury, at cost (11,280,098 and 27,200,964    shares at December 31, 2020 and December 31, 2019, respectively)     (327,182 )     (327,086 )
Total Party City Holdco Inc. stockholders’ equity     50,790       529,745  
Noncontrolling interests     (269 )     (24 )
Total stockholders’ equity     50,521       529,721  
Total liabilities, redeemable securities and stockholders’ equity   $ 2,806,455     $ 3,595,319  
                 
 
PARTY CITY HOLDCO INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except share and per share data, unaudited)
 
  Three Months EndedDecember 31,     Year EndedDecember 31,  
  2020     2019     2020     2019  
Revenues:                              
Net sales $ 645,284     $ 728,361     $ 1,843,444     $ 2,339,510  
Royalties and franchise fees   2,897       3,190       7,246       9,279  
Total revenues   648,181       731,551       1,850,690       2,348,789  
Cost of sales   479,348       435,122       1,369,935       1,500,633  
Wholesale selling expenses   13,006       16,174       50,121       67,103  
Retail operating expenses   136,896       137,639       387,398       440,395  
Franchise expenses   2,921       3,339       12,146       13,152  
General and administrative expenses   48,126       51,175       210,244       177,672  
Art and development costs   4,543       5,635       17,638       23,203  
Development stage expenses         2,770       2,932       10,736  
Gain on sale/leaseback transaction                     (58,381 )
Store impairment and restructuring charges   1,631       3,221       22,449       29,038  
Loss on assets held for sale   73,948             73,948        
Goodwill, intangibles and long-lived assets impairment         303,531       581,380       562,631  
Total expenses   760,419       958,606       2,728,191       2,766,182  
Loss from operations   (112,238 )     (227,055 )     (877,501 )     (417,393 )
Interest expense, net   13,089       26,042       77,043       114,899  
Other (income) expense, net   (572 )     (4,772 )     3,715       1,871  
(Gain) on debt refinancing               (273,149 )      
Loss before income taxes   (124,755 )     (248,325 )     (685,110 )     (534,163 )
Income tax (benefit) expense   (28,360 )     20,504       (156,653 )     (1,305 )
Net (loss)   (96,395 )     (268,829 )     (528,457 )     (532,858 )
Less: Net income (loss) attributable to noncontrolling interests   22       (11 )     (219 )     (363 )
Net (loss) attributable to common     shareholders of Party City Holdco Inc. $ (96,417 )   $ (268,818 )   $ (528,238 )   $ (532,495 )
Net (loss) per share attributable to common     shareholders of Party City Holdco Inc.–Basic $ (0.88 )   $ (2.88 )   $ (5.24 )   $ (5.71 )
Net (loss) per share attributable to common     shareholders of Party City Holdco Inc.–Diluted $ (0.88 )   $ (2.88 )   $ (5.24 )   $ (5.71 )
Weighted-average number of common shares-Basic   109,603,253       93,372,232       100,804,944       93,295,692  
Weighted-average number of common shares-Diluted   109,603,253       93,372,232       100,804,944       93,295,692  
                               
 
PARTY CITY HOLDCO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
  Fiscal Year Ended December 31,  
  2020     2019     2018  
                   
Cash flows provided by operating activities:                      
Net (loss) income $ (528,457 )   $ (532,858 )   $ 122,819  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:                      
Depreciation and amortization expense   76,506       81,116       78,575  
Amortization of deferred financing costs and original issuance discounts   4,198       4,722       10,989  
Provision for doubtful accounts   6,321       2,323       1,213  
Deferred income tax (benefit) expense   (95,085 )     (47,366 )     4,573  
Deferred rent               5,351  
Undistributed income in equity method investments   333       (472 )     (369 )
Change in operating lease liability/asset   30,981       (9,942 )      
Loss (gain) on disposal of assets   70       (59,786 )     3  
Loss on assets held for sale   73,948              
Non-cash adjustment for store impairment and restructuring   17,585       20,236        
Goodwill, intangibles and long-lived assets impairment   581,380       562,631        
Non-employee equity based compensation (see Note 25 – Kazzam, LLC)   1,033       515       81  
Stock option expense – time – based   796       1,319       1,744  
Stock option expense – performance – based   7,847              
Restricted stock unit and restricted cash awards expense – performance-based   1,329              
Restricted stock units expense—time-based   2,071       2,033       1,174  
Directors—non-cash compensation   337       313       196  
(Gain) on debt refinancing   (273,149 )            
Changes in operating assets and liabilities, net of effects of acquired businesses:                      
Decrease (increase) in accounts receivable   22,396       (2,600 )     (10,431 )
Decrease (increase) in inventories   184,924       72,385       (142,866 )
(Increase) decrease in prepaid expenses and other current assets, net   (66,166 )     14,741       16,666  
(Increase) decrease in accounts payable, accrued expenses and income taxes payable   28,002       (65,617 )     12,138  
Net cash provided by operating activities   77,200       43,693       101,856  
Cash flows (used in) provided by investing activities:                      
Cash paid in connection with acquisitions, net of cash acquired   (3,305 )     (20,878 )     (65,301 )
Capital expenditures   (51,128 )     (61,733 )     (85,661 )
Proceeds from disposal of property and equipment   162       246,286       55  
Net cash (used in) provided by investing activities   (54,271 )     163,675       (150,907 )
Cash flows provided by (used in) financing activities:                      
Repayment of loans, notes payable and long-term obligations   (254,438 )     (441,632 )     (547,695 )
Proceeds from loans, notes payable and long-term obligations   368,439       203,344       652,087  
Exercise of stock options   147       1,148       2,269  
Treasury stock purchases   (96 )     (156 )     (40,197 )
Debt issuance and modification costs   (20,348 )     (414 )     (10,294 )
Net cash provided by (used in) financing activities   93,704       (237,710 )     56,170  
Effect of exchange rate changes on cash and cash equivalents   (500 )     6,299       (2,308 )
Net increase(decrease) in cash and cash equivalents and restricted cash   116,133       (24,043 )     4,811  
Less: net (decrease) in cash classified within current assets held for sale   (31,628 )            
Cash and cash equivalents and restricted cash at beginning of period   35,176       59,219       54,408  
Cash and cash equivalents and restricted cash at end of period* $ 119,681     $ 35,176     $ 59,219  
Supplemental disclosure of cash flow information:                      
Cash paid during the period:                      
Interest $ 68,396     $ 108,561     $ 94,472  
Income taxes, net of refunds $ 26,867     $ 36,093     $ 59,156  
                       
 
PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)
 
  Three Months Ended December 31,     Year Ended December 31,  
  2020     2019     2020     2019  
(Dollars in thousands)                              
Net (loss) $ (96,395 )   $ (268,829 )   $ (528,457 )   $ (532,858 )
Interest expense, net $ 13,089       26,042       77,043       114,899  
Income tax (benefit) expense $ (28,360 )     20,504       (156,653 )     (1,305 )
Depreciation and amortization   18,710       18,736       76,506       81,116  
EBITDA   (92,956 )     (203,547 )     (531,561 )     (338,148 )
Non-cash purchase accounting adjustments         243             3,000  
Store impairment and restructuring charges (c)   3,038       3,818       39,323       58,778  
Other restructuring, retention and severance (b)   403       1,212       12,104       6,460  
Goodwill, intangibles and long-lived assets impairment (c)         303,531       581,380       562,631  
Deferred rent (d)   (529 )     (754 )     (3,147 )     (1,796 )
Closed store expense (e)   976       1,021       3,858       4,445  
Foreign currency (gains) losses, net   (2,013 )     (65 )     (1,058 )     421  
Stock option expense – time – based (f)   125       169       796       1,319  
Stock option expense – performance – based (n)               7,847        
Non-employee equity-based compensation (g)         129       1,033       515  
Undistributed (loss) in equity method investments   (356 )     (277 )           (472 )
Corporate development expenses (h)   1,004       2,426       7,197       14,208  
Refinancing charges (j)         36             36  
Restricted stock units – time-based (i)   503       490       2,071       2,033  
Restricted stock unit and restricted cash awards expense – performance-based   950       (1,036 )     1,460        
Non-recurring legal settlements/costs   673       6,753       7,843       8,548  
(Gain) on debt refinancing (j)               (273,149 )      
Gain on sale/leaseback transaction (o)                     (58,381 )
(Gain) loss on sale of assets (o)         5,074             5,074  
Inventory disposal (c)   88,358             88,358        
Loss on held for sale (p)   73,948             73,948          
COVID - 19 (l)   2,784             73,843        
Other   354       301       3,388       518  
Adjusted EBITDA $ 77,262     $ 119,524     $ 95,534     $ 269,189  
Adjusted EBITDA margin   45.8 %     40.3 %     19.9 %     31.7 %
                               
 
PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)
 
            Three Months Ended December 31, 2020 EBITDA Adjustments          
    December 31, 2020GAAPBasis (asreported)     Storeimpairmentandrestructuringcharges (c)     Corporatedevelopmentexpenses (h)     Legal     Stock OptionExpense/Non-Employee EquityCompensation/Restrictedstock units –time-based(f)(g)(i)(n)     DeferredRent (d)     Otherrestructuring,retention andseverance (b)     Closedstoreexpense (e)     COVID-19 (l)     Foreigncurrencylosses     Other (p)     December 31,2020Non-GAAPbasis  
Revenues:                                                                                                
Net sales   $ 645,284                                                                                     $ 645,284  
Royalties and franchise fees     2,897                                                                                       2,897  
Total revenues     648,181                                                                                       648,181  
Cost of sales     479,348       (89,765 )                                                     (506 )                     389,077  
Wholesale selling expenses     13,006                                                                                       13,006  
Retail operating expenses     136,896                                       480               (823 )     (1,956 )                     134,597  
Franchise expenses     2,921                                                                                       2,921  
General and administrative expenses     48,126               360       (673 )     (1,578 )     49       (403 )     (153 )     (322 )                     45,406  
Art and development costs     4,543                                                                                       4,543  
Store impairment and restructuring charges     1,631       (1,631 )                                                                              
Loss on assets held for sale     73,948                                                                               (73,948 )      
Total expenses     760,419       (91,396 )     360       (673 )     (1,578 )     529       (403 )     (976 )     (2,784 )           (73,948 )     589,550  
(Loss) 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 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  
                                                                                                 
 
PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)
 
            Three Months Ended December 31, 2019 EBITDA Adjustments          
    December 31, 2019GAAPBasis (asreported)     Goodwill, intangibles and long-lived assets impairment (c)     Storeimpairmentandrestructuringcharges (a)     Gain on sale/leaseback transaction(o)     Corporatedevelopmentexpenses (h)     Legal     Stock OptionExpense/Non-Employee EquityCompensation/Restrictedstock units –time-based(f)(g)(i)(m)     DeferredRent (d)     Otherrestructuring,retention andseverance (b)     Closedstoreexpense (e)     Foreigncurrencygains     Other     December 31,2019Non-GAAPbasis  
Revenues:                                                                                                        
Net sales   $ 728,361                                                                                             $ 728,361  
Royalties and franchise fees     3,190                                                                                               3,190  
Total revenues     731,551                                                                                               731,551  
Cost of sales     435,122               (597 )                                     703                                       435,228  
Wholesale selling expenses     16,174                                                                                               16,174  
Retail operating expenses     137,639                                                                       (835 )                     136,804  
Franchise expenses     3,339                                                                                               3,339  
General and administrative expenses     51,175                                       (6,753 )     247       51       (1,212 )     (186 )                     43,322  
Art and development costs     5,635                                                                                               5,635  
Development stage expenses     2,770                               (2,772 )                                                             (2 )
Store impairment and restructuring charges     3,221               (3,221 )                                                                              
Goodwill, intangibles and long-lived assets impairment     303,531       (303,531 )                                                                                      
Total expenses     958,606       (303,531 )     (3,818 )           (2,772 )     (6,753 )     247       754       (1,212 )     (1,021 )                 640,500  
Income from operations     (227,055 )                                                                                             91,051  
Interest expense, net     26,042                                                                                               26,042  
Other expense, net     (4,772 )                             345                                               65       (5,375 )     (9,737 )
Income before income taxes     (248,325 )                                                                                             74,746  
Interest expense, net     26,042                                                                                               26,042  
Depreciation and amortization     18,736                                                                                               18,736  
EBITDA     (203,547 )                                                                                             119,524  
Adjustments to EBITDA     323,071       (303,531 )     (3,818 )           (2,427 )     (6,753 )     247       754       (1,212 )     (1,021 )     65       (5,375 )      
Adjusted EBITDA   $ 119,524     $ (303,531 )   $ (3,818 )   $     $ (2,427 )   $ (6,753 )   $ 247     $ 754     $ (1,212 )   $ (1,021 )   $ 65     $ (5,375 )   $ 119,524  
                                                                                                         
 
PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)
 
            Twelve Months Ended December 31, 2020 EBITDA Adjustments          
    December 31, 2020GAAPBasis (asreported)     Goodwill, intangibles and long-lived assets impairment (c)     Storeimpairmentandrestructuringcharges , including inventory disposal (c)     Gain on debt refinancing (i)     Corporatedevelopmentexpenses (e)     Legal(k)     Stock OptionExpense/Non-Employee EquityCompensation/Restrictedstock units(g)(h)(i)(n)     DeferredRent (d)     Otherrestructuring,retention andseverance (b)     Closedstoreexpense (e)(f)     COVID-19 (q)     Foreigncurrencylosses     Other (p)     December 31,2020Non-GAAPbasis  
Revenues:                                                                                                                
Net sales   $ 1,843,444                                                                                                     $ 1,843,444  
Royalties and franchise fees     7,246                                                                                                       7,246  
Total revenues     1,850,690                                                                                                       1,850,690  
Cost of sales     1,369,935               (105,232 )                                     (214 )     (4,437 )             (42,952 )             (3,388 )     1,213,712  
Wholesale selling expenses     50,121                               (1,840 )                                             (623 )                     47,658  
Retail operating expenses     387,398                                                       3,165               (3,556 )     (18,268 )                     368,739  
Franchise expenses     12,146                                                                               (672 )                     11,474  
General and administrative expenses     210,244                               (210 )     (7,843 )     (12,174 )     196       (7,667 )     (302 )     (11,328 )                     170,916  
Art and development costs     17,638                                                                                                       17,638  
Development stage expenses     2,932                               (2,932 )                                                                      
Store impairment and restructuring charges     22,449               (22,449 )                                                                                      
Loss on assets held for sale     73,948                                                                                               (73,948 )      
Goodwill, intangibles and long-lived assets impairment     581,380       (581,380 )                                                                                              
Total expense     2,728,191       (581,380 )     (127,681 )           (4,982 )     (7,843 )     (12,174 )     3,147       (12,104 )     (3,858 )     (73,843 )           (77,336 )     1,830,137  
(Loss) income 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 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  
                                                                                                                 
 
PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA, Continued
(In thousands, unaudited)
 
            Twelve Months Ended December 31, 2019 EBITDA Adjustments          
    December 31, 2019GAAPBasis (asreported)     Goodwill, intangibles and long-lived assets impairment (o)     Storeimpairmentandrestructuringcharges (c)     Gain on sale/leaseback transaction(a)     Corporatedevelopmentexpenses (e)     Legal(k)     Stock OptionExpense/Non-Employee EquityCompensation/Restrictedstock units(g)(h)(i)(m)     DeferredRent (d)     Otherrestructuring,retention andseverance (b)     Closedstoreexpense (f)     Non-CashPurchaseAccountingAdjustments     Foreigncurrencygains     Other (r)(s)     December 31,2019Non-GAAPbasis  
Revenues:                                                                                                                
Net sales   $ 2,339,510                                                                                                     $ 2,339,510  
Royalties and franchise fees   $ 9,279                                                                                                       9,279  
Total revenues     2,348,789                                                                                                       2,348,789  
Cost of sales     1,500,633               (29,740 )                                     1,534                                               1,472,427  
Wholesale selling expenses     67,103                                                                                                       67,103  
Retail operating expenses     440,395                                                               (31 )     (3,946 )                             436,418  
Franchise expenses     13,152                                                                                                       13,152  
General and administrative expenses     177,672                                       (8,548 )     (3,867 )     262       (6,429 )     (500 )                             158,590  
Art and development costs     23,203                                                                                                       23,203  
Development stage expenses     10,736                               (10,736 )                                                                      
Gain on sale/leaseback transaction     (58,381 )                     58,381                                                                                
Store impairment and restructuring charges     29,038               (29,038 )                                                                                      
Goodwill, intangibles and long-lived assets impairment     562,631       (562,631 )                                                                                              
Total expenses     2,766,182       (562,631 )     (58,778 )     58,381       (10,736 )     (8,548 )     (3,867 )     1,796       (6,460 )     (4,446 )                       2,170,893  
(Loss) income from operations     (417,393 )                                                                                                     177,896  
Interest expense, net     114,899                                                                                                       114,899  
Other expense, net     1,871                               (3,471 )                                             (3,001 )     (421 )     (5,155 )     (10,177 )
(Loss) income before income taxes     (534,163 )                                                                                                     73,174  
Interest expense, net     114,899                                                                                                       114,899  
Depreciation and amortization     81,116                                                                                                       81,116  
EBITDA     (338,148 )                                                                                                     269,189  
Adjustments to EBITDA     607,337       (562,631 )     (58,778 )     58,381       (14,207 )     (8,548 )     (3,867 )     1,796       (6,460 )     (4,446 )     (3,001 )     (421 )     (5,155 )      
Adjusted EBITDA   $ 269,189     $ (562,631 )   $ (58,778 )   $ 58,381     $ (14,207 )   $ (8,548 )   $ (3,867 )   $ 1,796     $ (6,460 )   $ (4,446 )   $ (3,001 )   $ (421 )   $ (5,155 )   $ 269,189  
                                                                                                                 
 
PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED NET INCOME
(In thousands, except share and per share data, unaudited)
           
  Three Months EndedDecember 31,     Year EndedDecember 31,  
  2020     2019     2020     2019  
(Dollars in thousands)                              
(Loss) before income taxes $ (124,755 )   $ (248,325 )   $ (685,110 )   $ (534,163 )
Intangible asset amortization (l)   2,918       3,572       11,362       14,100  
Non-cash purchase accounting adjustments         2             4,202  
Amortization of deferred financing costs and original issuance discounts (m)   922       1,211       4,198       4,722  
Store impairment and restructuring charges (c)   1,338       3,818       30,813       58,778  
Goodwill and intangibles impairment (o)         303,531       581,380       562,631  
Refinancing charges                     36  
Stock option expense (g)   125       169       8,643       1,319  
Restricted stock units expense—performance based (i)   1,460       (1,036     1,460        
Non-employee equity based compensation (h)         129       1,033       515  
(Gain) on sale-leaseback (a)                     (58,381 )
(Gain) on debt refinancing (j)    —             273,149        
Other restructuring charges (b)         389       10,139       3,211  
(Gain) on sale of Canada retail assets (r)         (2,873 )           (2,873 )
Non-recurring legal settlements/costs   68       6,500       7,094       6,500  
Loss on assets held for sale (p)   73,948             73,948        
Inventory disposal (c)   88,358             88,358        
COVID – 19 (q)   2,548             73,661        
Adjusted income (loss) before income taxes $ 46,930     $ 67,087     $ (66,170 )   $ 60,597  
Adjusted income tax (benefit) expense (n)   19,476       19,300       (16,940 )     17,183  
Adjusted net income (loss) $ 27,454     $ 47,787     $ (49,230 )   $ 43,414  
Adjusted net income(loss) per common share - diluted $ 0.25     $ 0.51       (0.49 )   $ 0.46  
Weighted-average number of common shares-diluted   111,298,379       93,372,232       100,804,944       93,604,794  
                               
(a) During June 2019, the Company reported a $58.4 million gain from the sale and leaseback of its main distribution center in Chester, New York and its metallic balloons manufacturing facility in Eden Prairie, Minnesota. The aggregate sale price for the three properties was $128.0 million. Simultaneous with the sale, the Company entered into twenty-year leases for each of the facilities
(b) Amounts expensed during 2020 principally related to severance due to organizational changes. Amounts expensed during 2019 principally relate to executive severance and the write-off of inventory for a section of the Company’s Party City stores that were restructured
(c) 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 2019, 55 stores were identified for closure, out of which 35 stores were closed in 2019 and 20 stores were closed in January 2020. In 2020, 21 stores identified for closure in the first quarter of 2020 and were closed in the third quarter. These closings should provide 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. In conjunction with the store optimization program and store impairment, during the years ended December 31, 2020 and 2019, the Company recorded charges as detailed in Note 3 – Store Impairment and Restructuring Charges, of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
   
  As indicated in Note 7 – Inventories, Net, of Item 8, “Financial Statements and Supplementary Data,” during the fourth quarter of 2020, 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. The more edited and curated assortments are expected to improve the customer experience by making stores easier to shop and product selections more relevant to consumers, while also improving the efficiency of inventory management and reducing working capital needs. As a result, the Company disposed of $88,358 in inventory during the fourth quarter of 2020 that will not be required in future seasons
(d) The deferred rent adjustment reflects the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay for such items.
(e) Principally represents third-party costs related to acquisitions (primarily legal expenses and diligence fees). Such costs are excluded from the definition of “Consolidated Adjusted EBITDA” that is utilized for certain covenants in the Company’s credit agreements. Additionally, 2019 and 2020 include start-up costs for Kazzam (see Note 25, Kazzam LLC., of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion)
(f) Principally charges incurred related to closing underperforming stores
(g) Represents non-cash charges related to stock options
(h) 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
(i) 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
(j) As described in Note 12 — Long-Term Obligations of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K, the Company recognized a gain of $273,149 on debt refinancing transactions
(k) Non-recurring legal settlements/costs
(l) Represents the non-cash amortization of intangible assets.
(m) Includes the non-cash amortization of deferred financing costs, original issuance discounts and capitalized call premiums. Additionally, certain years include charges related to debt refinancings. See note (c) for further discussion
(n) 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.
(o) As a result of a sustained decline in market capitalization, the Company recognized a non-cash pre-tax goodwill and intangibles impairment charges during the year ended December 31, 2019 and December 31, 2020, respectively. (see Note 4, Goodwill, of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion)
(p) Note 6 – Disposition of Assets and Assets and Liabilities Held for Sale, the Company closed the previously disclosed sale of a substantial portion of its international operations. As of December 31, 2020, the Company reported the assets and liabilities of the international operations as held for sale and recorded a loss reserve of $73,948 against the net assets
(q) 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
(r) The Company recorded a $2.9 million gain on sale of its Canadian-based Party City stores, which is reported in Other expense, net on the Consolidated Statement of Operations and Comprehensive (Loss) Income
(s) Represents a loss on sale of ownership interest in Punchbowl (see Note 21, Fair Value Measurements, of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion) and certain property, plant and equipment, and a write-off of goodwill related to the Company’s sale of its Canadian-based Party City stores
   
 
PARTY CITY HOLDCO INC.
SEGMENT INFORMATION
(In thousands, except percentages, unaudited)
 
  Three Months Ended December 31,
  2020     2019
  Dollars in Thousands     Percentage of Total Revenues   Dollars in Thousands     Percentage of Total Revenues
Net Sales:                              
Wholesale $ 247,513       38.2 %   $ 277,233       37.9 %
Eliminations   (126,697 )     (19.5 )     (120,231 )     (16.4 )
Net wholesale   120,816       18.6       157,002       21.5  
Retail   524,467       80.8       571,359       78.1  
Total net sales   645,283       99.6       728,361       99.6  
Royalties and franchise fees   2,898       0.4       3,190       0.4  
Total revenues $ 648,181       100.0 %   $ 731,551       100.0 %
  Fiscal Year Ended December 31,
  2020     2019
  Dollars in Thousands     Percentage of Total Revenues   Dollars in Thousands     Percentage of Total Revenues
Net Sales:                              
Wholesale $ 940,228       50.8 %   $ 1,240,026       52.8 %
Eliminations   (471,863 )     (25.5 )     (642,652 )     (27.4 )
Net wholesale   468,365       25.3       597,374       25.4  
Retail   1,375,079       74.3       1,742,136       74.2  
Total net sales   1,843,444       99.6       2,339,510       99.6  
Royalties and franchise fees   7,246       0.4       9,279       0.4  
Total revenues $ 1,850,690       100.0 %   $ 2,348,789       100.0 %
  Three Months Ended December 31,
  2020     2019
  Dollars inThousands     Percentage ofNet Sales   Dollars inThousands     Percentage ofNet Sales
Retail $ 143,702       27.4 %   $ 259,678       45.4 %
Wholesale   23,717       19.6       33,561       21.4  
Total gross profit $ 167,420       25.7 %   $ 293,239       40.3 %
  Fiscal Year Ended December 31,
  2020     2019
  Dollars inThousands     Percentage ofNet Sales   Dollars inThousands     Percentage ofNet Sales
Retail $ 400,738       29.1 %   $ 696,439       40.0 %
Wholesale   74,256       15.9       142,438       23.8  
Total gross profit $ 474,994       25.7 %   $ 838,877       35.9 %
                               
 
PARTY CITY HOLDCO INC.
OPERATING METRICS
 
  Three Months Ended December 31,     LTM  
  2020     2019     2020  
Store Count                      
Corporate Stores:                      
Beginning of period   739       778       777  
New stores opened   3           5  
Acquired   4           6  
Closed         (1 )     (42 )
End of period   746       777       746  
Franchise Stores                      
Beginning of period   90       98       98  
New stores opened              
Sold to Party City               (2 )
Closed   (5 )           (11 )
End of period   85       98       85  
Grand Total   831       875       831  
                       
           
  Three Months Ended December 31,     Year Ended December 31,  
  2020       2019       2020       2019    
Wholesale Share of Shelf (a) 83.1 %     82.8 %     82.1 %     79.6 %  
Manufacturing Share of Shelf (b) 19.6 %     17.2 %     26.0 %     23.5 %  
                               
  Three Months Ended December 31,     Year Ended December 31,  
  2020       2019       2020       2019    
Brand comparable sales (c) -5.9 %     -5.1 %     -16.5 %     -3.0 %  
(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.
   
Contact:
ICR
Farah Soi and Rachel Schacter
203-682-8200
InvestorRelations@partycity.com

Source: Party City Holdco Inc.
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