Party City Holdco Inc. (the “Company” or “PRTY”; NYSE:PRTY) today
announced financial results for the quarter ended March 31, 2020.
Brad Weston, Chief Executive Officer, stated,
“First and foremost, I want to express my deepest gratitude to our
team members for their resilience in light of recent events
affecting our country as well as the ongoing impact of the COVID-19
pandemic. Prior to the chain-wide store closures that were
implemented in mid-March due to COVID-19, our first quarter results
reflected sequential topline trend improvement. Our focus since
then has been navigating the disruption created by the pandemic,
with the health and safety of our team members and customers as our
top priority. We instituted strict safety protocols across the
Company and took steps swiftly and aggressively to preserve our
financial health and liquidity. We also launched new initiatives to
continue serving customers, including curbside pick-up and same day
delivery to offer customers additional e-commerce fulfillment
options while stores were closed.”
Mr. Weston continued, “We are pleased to have
fully re-opened over 85% of our stores as of today. In addition, to
support our ongoing transformation initiatives, we recently
announced an agreement with certain of our bondholders to support a
set of transactions that, if consummated, is expected to reduce the
Company’s debt by over 25% and raise approximately $100 million in
new capital. As we push forward on our strategic plan to transform
our business and position Party City for long-term growth and
market share gains, we intend to continue to leverage our unique
vertical model and product development capabilities, along with our
strengthened omni-channel fulfillment options, to be the go-to
resource for customers celebrating life’s important
milestones.”
COVID-19 Response
As previously announced, Party City closed all
of its stores and implemented a work from home schedule for its
corporate office personnel as of March 18, 2020. On March 25, 2020,
the Company launched curbside pickup and, on April 5, 2020,
launched store delivery in select stores, consistent with state and
local guidelines. As of June 5, 2020, curbside pickup and store
delivery were expanded to 722 stores. The Company began to
reopen stores on May 1, 2020, in accordance with state and local
health ordinances, and as of today, has re-opened over 85% of its
stores. The following measures have been implemented in order to
continue to prioritize the wellbeing of Party City’s associates and
customers:
- Restricting the number of customers
allowed in stores at one time in line with local guidelines;
- Adding enhanced sanitization
protocols, including routinely disinfecting high-touch areas such
as shopping carts, credit card readers and checkout areas;
- Instituting use of face masks for
associates and customers per local guidelines;
- Adding in-store signage to further
promote social distancing, including designating one-way traffic
aisles and placing reminders throughout the stores;
- Placing plexiglass barriers at
registers and marking off every six feet at checkout lines;
and
- Requiring team members to adhere to
Centers for Disease Control and Prevention (CDC) guidelines on
handwashing and self-quarantining, including staying home if they
are not feeling well.
In addition, as announced on April 8, 2020, the
Company took several steps to safeguard the Company’s balance sheet
and preserve liquidity. To that end, the Company:
- Temporarily reduced base salaries
by 50% for Brad Weston, Chief Executive Officer, 30% for Todd
Vogensen, Chief Financial Officer and 15% to 20% for the remainder
of the executive leadership team. In addition, the Board of
Directors elected to forgo their respective quarterly cash
retainers for the second quarter of 2020;
- Furloughed approximately 90% of
store employees and 70% of wholesale, manufacturing and corporate
employees. The Company continued to provide health benefits to
furloughed employees;
- Reduced non-payroll expenses
including advertising, occupancy and other store expenses;
- Cancelled orders and negotiated
receipt delays to manage inventory levels; and
- Significantly reduced its 2020 capital expenditure budget.
Execution of Transaction Support
Agreement with Bondholders:
As announced on May 28, 2020, the Company
executed a Transaction Support Agreement with holders of
approximately 54% of the aggregate principal amount of the
Company’s outstanding 6.125% Senior Notes due 2023 and 6.625%
Senior Notes due 2026. The transactions (the “Transactions”)
contemplated by the TSA, if consummated, are expected to deleverage
the Company’s balance sheet by approximately $450 million and raise
approximately $100.0 million in new capital to increase its
financial strength and support the Company’s global operations and
ongoing transformation initiatives.
The closing of the Transactions is conditioned
on the satisfaction or waiver of certain conditions precedent,
including finalizing all definitive documents and achieving certain
participation thresholds. These Transactions may not be completed
as contemplated or at all. Among other conditions, the components
of the Transactions are conditioned on, and would be consummated
concurrently with, each other. If the Company is unable to complete
the Transactions or any other alternative transaction, on favorable
terms or at all, due to market conditions or otherwise, its
financial condition could be materially adversely affected.
First Quarter Summary:
- Total revenues decreased 19.3% on a
reported basis to $414.0 million and decreased 19.0% on a constant
currency basis.
- Total retail sales decreased 20.3%
on a reported basis and 20.2% on a constant currency basis,
principally due to the temporary closure of all of the Company’s
retail stores which was announced on March 18, 2020.
- Brand comparable sales through
February 29th, 2020 decreased 0.9%; an improvement relative to the
fourth quarter of 2019 due to strong New Year’s Eve and Super Bowl
performance. Full first quarter brand comparable sales
declined 17.1%.
- North American e-commerce sales
decreased by 15.4% on a reported basis and decreased 6.9% when
adjusted for curbside pickup and delivery and BOPIS (buy online,
pickup in store) sales.
- Net third-party wholesale revenues
decreased 16.5% or 15.6% in constant currency.
- Total gross profit margin decreased
560 basis points to 28.1% of net sales. Excluding certain
items not indicative of core operating performance, gross profit
margin decreased 320 basis points to 33.7% of net sales mainly due
to:
- sales deleverage (330 bps);
- cost of helium (120 bps);
- rent from sale leaseback transaction (50 bps);
- product mix shifts (40 bps);
- increased wholesale share of shelf +110 bps;
- lower clearance/promotion costs in 2020 compared to 2019 +100
bps
- As a result of a sustained decline
in the Company’s market capitalization and significantly reduced
customer demand for the Company’s products due to “COVID-19”, the
Company recognized non-cash pre-tax goodwill impairment charges at
March 31, 2020 against the goodwill associated with its retail and
wholesale reporting units of $253.1 million and $148.3 million,
respectively.
- Operating expenses totaled $174.3
million or $7.9 million higher than the first quarter of 2019, and
excluding certain items not indicative of core operating
performance, totaled $147.8 million or $12.7 million lower than the
first quarter of 2019, principally the result of temporary store
closures during the quarter.
- Interest expense was $25.1 million
during the first quarter of 2020, compared to $29.3 million during
the first quarter of 2019 driven by the paydown of debt associated
with the proceeds from the sale leaseback and Canadian retail
transactions.
- Reported GAAP net loss was $541.5
million, or a loss of $5.80 per share.
- Adjusted net loss was $26.4
million, or a loss of $0.28 per share, compared to adjusted net
income of $1.1 million, or $0.01 per share, in the first quarter of
2019. (See “Non-GAAP Financial Information”)
- Adjusted EBITDA was $11.9 million,
versus $51.5 million during the first quarter of 2019. (See
“Non-GAAP Financial Information”)
Balance Sheet Highlights:
On March 27, 2020, the Company announced that it
accessed an additional $150 million from its $640 million revolving
credit facility. As of the end of the first quarter on March 31,
2020, the Company had $194.4 million in cash, $1,760 million in
debt (net of cash) and approximately $71 million of availability
under the ABL Facility.
Store Optimization Program:
In 2019, the Company initiated a store
optimization program under which the Company identified
approximately 55 Party City stores to be closed. In addition, 21
stores were identified in 2020 for closure at a future date. The
Company also recorded an impairment charge for open stores where
sales were affected by COVID-19. In conjunction with the
program and store impairment, the Company’s Retail segment recorded
$29.4 million and $35.6 million of store impairment and
restructuring charges in the first quarter of 2020 and 2019,
respectively.
Fiscal 2020 Outlook:
During the remainder of 2020, the Company plans
to close approximately 21 stores, open 2 new stores, with the
remaining 10 planned new store openings likely to shift into
2021.
In 2020, the Company plans to invest
approximately $35-$40 million dollars in capital expenditures, with
approximately one third invested in its retail segment, and the
balance invested in its manufacturing and distribution
capabilities.
As a result of the continued disruption and
uncertainty caused by the COVID-19 pandemic, the Company is not
providing any additional financial outlook information at this time
for fiscal 2020.
Conference Call
Information:
A conference call to discuss the first quarter
2020 financial results is scheduled for today, June 12, 2020, 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 866-270-1533 (U.S. domestic) or
412-317-0797 (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 and Adjusted
Earnings per Share. 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 free cash flow, defined as Adjusted EBITDA less capital
expenditures, and 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. Adjusted Earnings per Share is
calculated by dividing Adjusted Net Income by the Weighted Average
Number of Common Shares-Diluted. 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, including Party City’s expectations regarding its
ability to maximize the potential of its vertical model and product
development capabilities, the potential consummation of the
Transactions and the related reduction to Party City’s debt and
raising of new capital, Party City’s plans to open and close
stores, and Party City’s plans to invest in capital expenditures in
its retail segment and in its manufacturing and distribution
capabilities. 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 helium
shortages 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, 2019 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. Party City Holdco 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 850 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
www.partycity.com.
Contact:ICRFarah Soi and Rachel
Schacter203-682-8200InvestorRelations@partycity.com
Source: Party City Holdco Inc.
PARTY CITY HOLDCO
INC.CONSOLIDATED BALANCE
SHEETS(In thousands, except share data,
unaudited)
|
|
March 31, 2020 |
|
December 31, 2019 |
|
|
(Unaudited) |
|
|
ASSETS |
|
|
|
|
Current
assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
194,433 |
|
|
$ |
34,917 |
|
Accounts receivable, net |
|
|
116,223 |
|
|
|
149,109 |
|
Inventories, net |
|
|
629,875 |
|
|
|
658,419 |
|
Prepaid expenses and other current assets |
|
|
76,698 |
|
|
|
51,685 |
|
Total current assets |
|
|
1,017,229 |
|
|
|
894,130 |
|
Property,
plant and equipment, net |
|
|
235,577 |
|
|
|
243,572 |
|
Operating
lease asset |
|
|
773,775 |
|
|
|
802,634 |
|
Goodwill |
|
|
665,129 |
|
|
|
1,072,330 |
|
Trade
names |
|
|
394,221 |
|
|
|
530,320 |
|
Other
intangible assets, net |
|
|
41,960 |
|
|
|
45,060 |
|
Other
assets, net |
|
|
6,904 |
|
|
|
7,273 |
|
Total assets |
|
$ |
3,134,795 |
|
|
$ |
3,595,319 |
|
LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS’
EQUITY |
|
|
|
|
Current
liabilities: |
|
|
|
|
Loans and notes payable |
|
$ |
381,422 |
|
|
$ |
128,806 |
|
Accounts payable |
|
|
96,383 |
|
|
|
152,300 |
|
Accrued expenses |
|
|
154,847 |
|
|
|
150,921 |
|
Current portion of operating lease liability |
|
|
153,614 |
|
|
|
155,471 |
|
Income taxes payable |
|
|
— |
|
|
|
35,905 |
|
Current portion of long-term obligations |
|
|
98,588 |
|
|
|
71,524 |
|
Total current liabilities |
|
|
884,854 |
|
|
|
694,927 |
|
Long-term
obligations, excluding current portion |
|
|
1,474,854 |
|
|
|
1,503,987 |
|
Long-term
portion of operating lease liability |
|
|
707,734 |
|
|
|
720,735 |
|
Deferred
income tax liabilities, net |
|
|
70,943 |
|
|
|
126,081 |
|
Other
long-term liabilities |
|
|
16,036 |
|
|
|
16,517 |
|
Total liabilities |
|
|
3,154,421 |
|
|
|
3,062,247 |
|
Redeemable
securities |
|
|
— |
|
|
|
3,351 |
|
Commitments and contingencies |
|
|
|
|
Stockholders’ equity: |
|
|
|
|
Common stock (94,491,352 and 94,461,576 shares outstanding and
121,708,422 and 121,662,540 shares issued at March 31, 2020
and December 31, 2019, respectively) |
|
|
1,211 |
|
|
|
1,211 |
|
Additional paid-in capital |
|
|
933,174 |
|
|
|
928,573 |
|
Retained deficit |
|
|
(578,732 |
) |
|
|
(37,219 |
) |
Accumulated other comprehensive loss |
|
|
(47,947 |
) |
|
|
(35,734 |
) |
Total Party City Holdco Inc. stockholders’ equity before common
stock held in treasury |
|
|
307,706 |
|
|
|
856,831 |
|
Less: Common stock held in treasury, at cost (27,217,070 and
27,200,964 shares at March 31, 2020 and December 31,
2019, respectively) |
|
|
(327,170 |
) |
|
|
(327,086 |
) |
Total Party City Holdco Inc. stockholders’ equity |
|
|
(19,464 |
) |
|
|
529,745 |
|
Noncontrolling interests |
|
|
(162 |
) |
|
|
(24 |
) |
Total stockholders’ equity |
|
|
(19,626 |
) |
|
|
529,721 |
|
Total liabilities, redeemable securities and stockholders’
equity |
|
$ |
3,134,795 |
|
|
$ |
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 Ended March 31, |
|
|
|
2020 |
|
|
|
2019 |
|
Revenues: |
|
|
|
|
Net sales |
|
$ |
412,461 |
|
|
$ |
511,102 |
|
Royalties and franchise fees |
|
|
1,582 |
|
|
|
2,014 |
|
Total revenues |
|
|
414,043 |
|
|
|
513,116 |
|
Cost of
sales |
|
|
296,757 |
|
|
|
339,042 |
|
Wholesale
selling expenses |
|
|
15,458 |
|
|
|
17,961 |
|
Retail
operating expenses |
|
|
88,166 |
|
|
|
95,018 |
|
Franchise
expenses |
|
|
3,309 |
|
|
|
3,303 |
|
General and
administrative expenses |
|
|
59,996 |
|
|
|
41,925 |
|
Art and
development costs |
|
|
5,322 |
|
|
|
5,929 |
|
Development
stage expenses |
|
|
2,029 |
|
|
|
2,226 |
|
Store
impairment and restructuring charges |
|
|
17,728 |
|
|
|
18,009 |
|
Goodwill and
intangibles impairment |
|
|
536,648 |
|
|
|
— |
|
Total expenses |
|
|
1,025,413 |
|
|
|
523,413 |
|
Loss from operations |
|
|
(611,370 |
) |
|
|
(10,297 |
) |
Interest
expense, net |
|
|
25,120 |
|
|
|
29,257 |
|
Other
expense, net |
|
|
5,676 |
|
|
|
1,254 |
|
Loss before income taxes |
|
|
(642,166 |
) |
|
|
(40,808 |
) |
Income tax
benefit |
|
|
(100,498 |
) |
|
|
(10,519 |
) |
Net loss |
|
|
(541,668 |
) |
|
|
(30,289 |
) |
Less: Net
loss attributable to noncontrolling interests |
|
|
(155 |
) |
|
|
(71 |
) |
Net loss attributable to common shareholders of Party City Holdco
Inc. |
|
$ |
(541,513 |
) |
|
$ |
(30,218 |
) |
Net loss per share attributable to common shareholders of Party
City Holdco Inc.–Basic |
$ |
(5.80 |
) |
|
$ |
(0.32 |
) |
Net loss per share attributable to common shareholders of Party
City Holdco Inc.–Diluted |
$ |
(5.80 |
) |
|
$ |
(0.32 |
) |
Weighted-average number of common shares-Basic |
|
|
93,395,609 |
|
|
|
93,174,553 |
|
Weighted-average number of common shares-Diluted |
|
|
93,395,609 |
|
|
|
93,174,553 |
|
Dividends
declared per share |
|
$ |
— |
|
|
$ |
— |
|
Comprehensive loss |
|
$ |
(553,881 |
) |
|
$ |
(26,637 |
) |
Less:
Comprehensive loss attributable to noncontrolling interests |
|
|
(155 |
) |
|
|
(62 |
) |
Comprehensive loss attributable to common shareholders of Party
City Holdco Inc. |
|
$ |
(553,726 |
) |
|
$ |
(26,575 |
) |
PARTY CITY HOLDCO INC. RECONCILIATION OF
ADJUSTED EBITDA(In thousands,
unaudited)
|
|
Three Months Ended March 31, |
|
|
|
2020 |
|
|
|
2019 |
|
(Dollars in thousands) |
|
|
|
|
Net
loss |
|
$ |
(541,668 |
) |
|
$ |
(30,289 |
) |
Interest expense, net |
|
|
25,120 |
|
|
|
29,257 |
|
Income taxes |
|
|
(100,498 |
) |
|
|
(10,519 |
) |
Depreciation and amortization |
|
|
17,752 |
|
|
|
21,341 |
|
EBITDA |
|
|
(599,294 |
) |
|
|
9,790 |
|
Non-cash purchase accounting adjustments |
|
|
— |
|
|
|
1,001 |
|
Store impairment and restructuring charges (a) |
|
|
27,761 |
|
|
|
35,638 |
|
Other restructuring, retention and severance (b) |
|
|
3,047 |
|
|
|
1,388 |
|
Goodwill and intangibles impairment (c) |
|
|
536,648 |
|
|
|
— |
|
Deferred rent (d) |
|
|
(1,384 |
) |
|
|
(1,150 |
) |
Closed store expense (e) |
|
|
1,235 |
|
|
|
591 |
|
Foreign currency losses/(gains), net |
|
|
4,255 |
|
|
|
(293 |
) |
Stock option expense (f) |
|
|
354 |
|
|
|
370 |
|
Non-employee equity-based compensation (g) |
|
|
1,033 |
|
|
|
129 |
|
Undistributed income in equity method investments |
|
|
(144 |
) |
|
|
(198 |
) |
Corporate development expenses (h) |
|
|
2,969 |
|
|
|
2,845 |
|
Restricted stock units – time-based (i) |
|
|
621 |
|
|
|
392 |
|
Non-recurring legal settlements/costs |
|
|
6,321 |
|
|
|
732 |
|
COVID - 19 (l) |
|
|
26,180 |
|
|
|
— |
|
Other |
|
|
2,272 |
|
|
|
247 |
|
Adjusted EBITDA |
|
$ |
11,874 |
|
|
$ |
51,482 |
|
|
|
|
|
March 31, 2020 EBITDA Adjustments |
|
|
|
|
March 31, 2020 GAAP Basis (as reported) |
|
Goodwill and intangibles impairment (c) |
|
Store impairment and restructuring charges
(a) |
|
Corporate development expenses (h) |
|
Legal |
|
Stock Option Expense/Non-Employee Equity Compensation/
Restricted stock units – time-based (f)(g)(i) |
|
Deferred Rent (d) |
|
Other restructuring, retention and severance
(b) |
|
Closed store expense (e) |
|
COVID-19 (l) |
|
Foreign currency losses |
|
Other |
|
March 31, 2020 Non-GAAP basis |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
412,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
412,461 |
|
Royalties and franchise fees |
|
|
1,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,582 |
|
Total revenues |
|
|
414,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
414,043 |
|
Cost of
sales |
|
|
296,757 |
|
|
|
|
|
(10,033 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,804 |
) |
|
|
|
|
(429 |
) |
|
|
273,491 |
|
Wholesale
selling expenses |
|
|
15,458 |
|
|
|
|
|
|
|
(736 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(114 |
) |
|
|
|
|
|
|
14,608 |
|
Retail
operating expenses |
|
|
88,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,336 |
|
|
|
|
(1,166 |
) |
|
|
(10,178 |
) |
|
|
|
|
|
|
78,158 |
|
Franchise
expenses |
|
|
3,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(329 |
) |
|
|
|
|
|
|
2,980 |
|
General and
administrative expenses |
|
|
59,996 |
|
|
|
|
|
|
|
(100 |
) |
|
|
(6,321 |
) |
|
|
(975 |
) |
|
|
48 |
|
|
(3,047 |
) |
|
|
(69 |
) |
|
|
(2,755 |
) |
|
|
|
|
|
|
46,777 |
|
Art and
development costs |
|
|
5,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,322 |
|
Development
stage expenses |
|
|
2,029 |
|
|
|
|
|
|
|
(2,029 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Store
impairment and restructuring charges |
|
|
17,728 |
|
|
|
|
|
(17,728 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Goodwill and
intangibles impairment |
|
|
536,648 |
|
|
|
(536,648 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Total expenses |
|
|
1,025,413 |
|
|
|
(536,648 |
) |
|
|
(27,761 |
) |
|
|
(2,865 |
) |
|
|
(6,321 |
) |
|
|
(975 |
) |
|
|
1,384 |
|
|
(3,047 |
) |
|
|
(1,235 |
) |
|
|
(26,180 |
) |
|
|
— |
|
|
|
(429 |
) |
|
|
421,336 |
|
Loss
from operations |
|
|
(611,370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,293 |
) |
Interest expense, net |
|
|
25,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,120 |
|
Other expense, net |
|
|
5,676 |
|
|
|
|
|
|
|
(104 |
) |
|
|
|
|
(1,033 |
) |
|
|
|
|
|
|
|
|
|
|
(4,255 |
) |
|
|
(1,699 |
) |
|
|
(1,415 |
) |
Loss before
income taxes |
|
|
(642,166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,998 |
) |
Interest expense, net |
|
|
25,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,120 |
|
Depreciation and amortization |
|
|
17,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,752 |
|
EBITDA |
|
|
(599,294 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,874 |
|
Adjustments to EBITDA |
|
|
611,168 |
|
|
|
(536,648 |
) |
|
|
(27,761 |
) |
|
|
(2,969 |
) |
|
|
(6,321 |
) |
|
|
(2,008 |
) |
|
|
1,384 |
|
|
(3,047 |
) |
|
|
(1,235 |
) |
|
|
(26,180 |
) |
|
|
(4,255 |
) |
|
|
(2,128 |
) |
|
|
— |
|
Adjusted EBITDA |
|
$ |
11,874 |
|
|
$ |
(536,648 |
) |
|
$ |
(27,761 |
) |
|
$ |
(2,969 |
) |
|
$ |
(6,321 |
) |
|
$ |
(2,008 |
) |
|
$ |
1,384 |
|
$ |
(3,047 |
) |
|
$ |
(1,235 |
) |
|
$ |
(26,180 |
) |
|
$ |
(4,255 |
) |
|
$ |
(2,128 |
) |
|
$ |
11,874 |
|
PARTY CITY HOLDCO INC. RECONCILIATION OF
ADJUSTED EBITDA, Continued(In thousands,
unaudited)
|
|
|
|
March 31, 2019 EBITDA Adjustments |
|
|
|
|
March 31, 2019 GAAP Basis (as reported) |
|
Store impairment and restructuring charges
(a) |
|
Corporate development expenses (h) |
|
Legal |
|
Stock Option Expense/Non-Employee Equity Compensation/
Restricted stock units – time-based (f)(g)(i) |
|
Deferred Rent (d) |
|
Other restructuring, retention and severance
(b) |
|
Closed store expense (e) |
|
Non-Cash Purchase Accounting Adjustments |
|
Foreign currency gains |
|
Other |
|
March 31, 2019 Non-GAAP basis |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
511,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
511,102 |
|
Royalties and franchise fees |
|
|
2,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,014 |
|
Total revenues |
|
|
513,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
513,116 |
|
Cost of
sales |
|
|
339,042 |
|
|
|
(17,629 |
) |
|
|
|
|
|
|
|
|
1,150 |
|
|
|
|
|
|
|
|
|
|
|
|
322,563 |
|
Wholesale
selling expenses |
|
|
17,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,961 |
|
Retail
operating expenses |
|
|
95,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(31 |
) |
|
|
(479 |
) |
|
|
|
|
|
|
|
|
94,508 |
|
Franchise
expenses |
|
|
3,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,303 |
|
General and
administrative expenses |
|
|
41,925 |
|
|
|
|
|
|
|
(732 |
) |
|
|
(891 |
) |
|
|
|
|
(1,357 |
) |
|
|
(112 |
) |
|
|
|
|
|
|
|
|
38,833 |
|
Art and
development costs |
|
|
5,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,929 |
|
Development
stage expenses |
|
|
2,226 |
|
|
|
|
|
(2,226 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Store
impairment and restructuring charges |
|
|
18,009 |
|
|
|
(18,009 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Goodwill and
intangibles impairment |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
Total expenses |
|
|
523,413 |
|
|
|
(35,638 |
) |
|
|
(2,226 |
) |
|
|
(732 |
) |
|
|
(891 |
) |
|
|
1,150 |
|
|
(1,388 |
) |
|
|
(591 |
) |
|
|
— |
|
|
|
— |
|
|
— |
|
|
|
483,097 |
|
Loss
from operations |
|
|
(10,297 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,019 |
|
Interest expense, net |
|
|
29,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,257 |
|
Other expense, net |
|
|
1,254 |
|
|
|
|
|
(619 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1,001 |
) |
|
|
293 |
|
|
(49 |
) |
|
|
(122 |
) |
Loss before
income taxes |
|
|
(40,808 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
884 |
|
Interest expense, net |
|
|
29,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,257 |
|
Depreciation and amortization |
|
|
21,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,341 |
|
EBITDA |
|
|
9,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,482 |
|
Adjustments to EBITDA |
|
|
41,692 |
|
|
|
(35,638 |
) |
|
|
(2,845 |
) |
|
|
(732 |
) |
|
|
(891 |
) |
|
|
1,150 |
|
|
(1,388 |
) |
|
|
(591 |
) |
|
|
(1,001 |
) |
|
|
293 |
|
|
(49 |
) |
|
|
— |
|
Adjusted EBITDA |
|
$ |
51,482 |
|
|
$ |
(35,638 |
) |
|
$ |
(2,845 |
) |
|
$ |
(732 |
) |
|
$ |
(891 |
) |
|
$ |
1,150 |
|
$ |
(1,388 |
) |
|
$ |
(591 |
) |
|
$ |
(1,001 |
) |
|
$ |
293 |
|
$ |
(49 |
) |
|
$ |
51,482 |
|
(a) During the three months ended March 31,
2019, the Company initiated a store optimization program under
which it closed approximately 55 Party City stores during the
course of 2019 and 21 Party City stores during the first quarter of
2020. In conjunction with the program, during the first three
months of 2020, the Company recorded the following charges:
inventory reserves: $11,696, operating lease asset impairment:
$8,162, plant and equipment impairment: $2,065 and labor and other
costs related to closing the stores: $1,451. In addition the
Company recorded $6,051 of operating lease asset impairment related
to its active stores, driven partially by stores that were closed
due to COVID-19. During the first three months of 2019, the
Company recorded the following charges related to the store
optimization program: inventory reserves: $17,629, operating lease
asset impairment: $13,209, property, plant and equipment
impairment: $4,139 and severance: $661. See Note 3 of the Company’s
March 31, 2020 form 10Q – Store Impairment and Restructuring
Charges in Item 1 for further discussion. Additionally, during the
process of liquidating the inventory in such stores, the Company
lost margin of $980. (b) Amounts expensed during first quarter 2020
principally relate to severance due to the organizational changes.
(c) As a result of a sustained decline in market capitalization,
the Company recognized a non-cash pre-tax goodwill and intangibles
impairment charge at March 31, 2020 of $536,648. (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. During the
first quarter of 2019, the Company adopted ASC 842. Under the
standard, the difference between accounting for rent and landlord
incentives in accordance with GAAP and the Company’s actual cash
outlay for such items is now incorporated in the Company’s
operating lease asset. (e) Charges incurred related to closing and
relocating stores in the ordinary course of business. (f)
Represents non-cash charges related to stock options. (g) The
acquisition of Ampology’s interest in Kazzam, LLC in an equity
transaction. See Note 19 – Kazzam, LLC in Item 1 of the Company’s
March 31, 2020 form 10Q for further discussion. (h) Primarily
represents costs for Kazzam (see the 2019 Form 10-K for further
discussion) and third-party costs related to acquisitions
(principally legal and diligence expenses). (i) Non-cash charges
for restricted stock units that vest based on service
conditions.(j) During February 2018, the Company amended the Term
Loan Credit Agreement. In conjunction with the amendment, the
Company wrote-off capitalized deferred financing costs, original
issue discounts and call premiums. The amounts are included in
“Amortization of deferred financing costs and original issuance
discounts” in the adjusted net income table above. (k) Represents
income tax expense/benefit after excluding the specific tax impacts
for each of the pre-tax adjustments. The tax impacts for each of
the adjustments were determined by applying to the pre-tax
adjustments the effective income tax rates for the specific legal
entities in which the adjustments were recorded. (l) Represents
COVID-19 expenses for employees on temporary furlough for whom the
Company provides health benefits; non-payroll expenses including
advertising, occupancy and other store operating expenses.
PARTY CITY HOLDCO INC. RECONCILIATION OF
ADJUSTED NET INCOME(In thousands, except share and
per share data, unaudited)
|
|
Three Months Ended March 31, |
|
|
|
2020 |
|
|
|
2019 |
|
(Dollars in thousands, except per share
amounts) |
|
|
|
|
Loss
before income taxes |
|
$ |
(642,166 |
) |
|
$ |
(40,808 |
) |
Intangible asset amortization |
|
|
2,866 |
|
|
|
3,429 |
|
Non-cash purchase accounting adjustments |
|
|
— |
|
|
|
1,317 |
|
Amortization of deferred financing costs and original issuance
discounts (j) |
|
|
1,202 |
|
|
|
1,143 |
|
Store impairment and restructuring charges (a) |
|
|
27,973 |
|
|
|
35,638 |
|
Other restructuring charges (b) |
|
|
922 |
|
|
|
— |
|
Goodwill and intangibles impairment (c) |
|
|
536,648 |
|
|
|
— |
|
Non-employee equity-based compensation (g) |
|
|
1,033 |
|
|
|
129 |
|
Non-recurring legal settlements/costs |
|
|
6,321 |
|
|
|
— |
|
Stock option expense (f) |
|
|
354 |
|
|
|
370 |
|
COVID - 19 (l) |
|
|
26,180 |
|
|
|
— |
|
Adjusted (loss) income before income taxes |
|
|
(38,667 |
) |
|
|
1,218 |
|
Adjusted income tax (benefit) expense (k) |
|
|
(12,284 |
) |
|
|
115 |
|
Adjusted net (loss) income |
|
$ |
(26,383 |
) |
|
$ |
1,103 |
|
Adjusted net (loss) income per common share –
diluted |
|
$ |
(0.28 |
) |
|
$ |
0.01 |
|
Weighted-average number of common shares-diluted |
|
|
93,395,609 |
|
|
|
93,879,979 |
|
(a) During the three months ended March 31,
2019, the Company initiated a store optimization program under
which it closed approximately 55 Party City stores during the
course of 2019 and 21 Party City stores during the first quarter of
2020. In conjunction with the program, during the first three
months of 2020, the Company recorded the following charges:
inventory reserves: $11,696, operating lease asset impairment:
$8,162, plant and equipment impairment: $2,065 and labor and other
costs related to closing the stores: $1,451. In addition the
Company recorded $6,051 of operating lease asset impairment related
to its active stores, driven partially by stores that were closed
due to COVID-19. During the first three months of 2019, the
Company recorded the following charges related to the store
optimization program: inventory reserves: $17,629, operating lease
asset impairment: $13,209, property, plant and equipment
impairment: $4,139 and severance: $661. See Note 3 of the Company’s
March 31, 2020 form 10Q – Store Impairment and Restructuring
Charges in Item 1 for further discussion. Additionally, during the
process of liquidating the inventory in such stores, the Company
lost margin of $980. (b) Amounts expensed during first quarter 2020
principally relate to severance due to the organizational changes.
(c) As a result of a sustained decline in market capitalization,
the Company recognized a non-cash pre-tax goodwill and intangibles
impairment charge at March 31, 2020 of $536,648. (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. During the
first quarter of 2019, the Company adopted ASC 842. Under the
standard, the difference between accounting for rent and landlord
incentives in accordance with GAAP and the Company’s actual cash
outlay for such items is now incorporated in the Company’s
operating lease asset. (e) Charges incurred related to closing and
relocating stores in the ordinary course of business. (f)
Represents non-cash charges related to stock options. (g) The
acquisition of Ampology’s interest in Kazzam, LLC in an equity
transaction. See Note 19 – Kazzam, LLC in Item 1 of the Company’s
March 31, 2020 form 10Q for further discussion. (h) Primarily
represents costs for Kazzam (see the 2019 Form 10-K for further
discussion) and third-party costs related to acquisitions
(principally legal and diligence expenses). (i) Non-cash charges
for restricted stock units that vest based on service
conditions.(j) During February 2018, the Company amended the Term
Loan Credit Agreement. In conjunction with the amendment, the
Company wrote-off capitalized deferred financing costs, original
issue discounts and call premiums. The amounts are included in
“Amortization of deferred financing costs and original issuance
discounts” in the adjusted net income table above. (k) Represents
income tax expense/benefit after excluding the specific tax impacts
for each of the pre-tax adjustments. The tax impacts for each of
the adjustments were determined by applying to the pre-tax
adjustments the effective income tax rates for the specific legal
entities in which the adjustments were recorded. (l) Represents
COVID-19 expenses for employees on temporary furlough for whom the
Company provides health benefits; non-payroll expenses including
advertising, occupancy and other store operating expenses.
PARTY CITY HOLDCO INC. RECONCILIATION OF 2020
OUTLOOK
(In millions, unaudited)
As a result of the continued disruption and uncertainty caused
by the COVID-19 pandemic, the Company is not providing financial
guidance for fiscal 2020.
PARTY CITY HOLDCO INC. SEGMENT
INFORMATION(In thousands, except percentages,
unaudited)
|
|
Three Months Ended March 31, |
|
|
|
2020 |
|
|
|
|
2019 |
|
|
|
|
|
|
|
|
|
Total Revenues |
|
Dollars in Thousands |
|
Percentage of Total Revenues |
|
Dollars in Thousands |
|
Percentage of Total Revenues |
Net
Sales: |
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
214,798 |
|
|
51.9 |
|
% |
|
$ |
290,301 |
|
|
56.6 |
|
% |
Eliminations |
|
|
(103,731 |
) |
|
(25.1 |
) |
|
|
|
(157,352 |
) |
|
(30.7 |
) |
|
Net wholesale |
|
|
111,067 |
|
|
26.8 |
|
|
|
|
132,949 |
|
|
25.9 |
|
|
Retail |
|
|
301,394 |
|
|
72.8 |
|
|
|
|
378,153 |
|
|
73.7 |
|
|
Total net sales |
|
|
412,461 |
|
|
99.6 |
|
|
|
|
511,102 |
|
|
99.6 |
|
|
Royalties
and franchise fees |
|
|
1,582 |
|
|
0.4 |
|
|
|
|
2,014 |
|
|
0.4 |
|
|
Total revenues |
|
$ |
414,043 |
|
|
100.0 |
|
% |
|
$ |
513,116 |
|
|
100.0 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2020 |
|
|
|
2019 |
|
|
|
|
|
|
|
|
Total Gross Profit |
|
Dollars in Thousands |
|
Percentage of Net Sales |
|
|
Dollars in Thousands |
|
Percentage of Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
94,361 |
|
31.3 |
% |
|
$ |
136,018 |
|
36.0 |
% |
Wholesale |
|
|
21,343 |
|
19.2 |
|
|
|
36,042 |
|
27.1 |
|
Total |
|
$ |
115,704 |
|
28.1 |
% |
|
$ |
172,060 |
|
33.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
PARTY CITY HOLDCO INC.
OPERATING METRICS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, |
|
LTM |
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
|
|
|
|
|
|
Store Count |
|
|
|
|
|
|
Corporate Stores: |
|
|
|
|
|
|
|
Beginning of
period |
777 |
|
|
866 |
|
|
868 |
|
|
|
New stores
opened |
0 |
|
|
2 |
|
|
1 |
|
|
|
Acquired |
0 |
|
|
0 |
|
|
6 |
|
|
|
Closed |
(20 |
) |
|
0 |
|
|
(118 |
) |
|
|
End of
period |
757 |
|
|
868 |
|
|
757 |
|
|
Franchise Stores: |
|
|
|
|
|
|
|
Beginning of
period |
98 |
|
|
96 |
|
|
98 |
|
|
|
New stores
opened |
0 |
|
|
2 |
|
|
0 |
|
|
|
Sold to
Party City |
0 |
|
|
0 |
|
|
0 |
|
|
|
Closed |
(1 |
) |
|
0 |
|
|
(1 |
) |
|
|
End of
period |
97 |
|
|
98 |
|
|
97 |
|
|
Grand Total |
854 |
|
|
966 |
|
|
854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, |
|
|
|
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
Wholesale Share of Shelf (a) |
81.3 |
% |
|
78.1 |
% |
|
|
Manufacturing Share of Shelf
(b) |
29.0 |
% |
|
27.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, |
|
|
|
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
Brand comparable sales (c) |
(17.1 |
%) |
|
(1.4 |
%) |
|
|
|
|
|
|
|
|
|
|
(a) Wholesale share of
shelf represents the percentage of our retail product cost of sales
supplied by our wholesale operations. |
(b) Manufacturing
share of shelf represents the percentage of our retail product cost
of sales manufactured by the company. |
(c) Party City brand comparable sales include North American
e-commerce sales. |
|
|
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