PRTY Party City Holdco Inc

Party City Holdco Inc. (the “Company” or “PRTY”; NYSE:PRTY) today announced financial results for the quarter and full year ended December 31, 2021.

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

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

Fourth Quarter Summary:

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

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

Full Year Summary:

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

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

Balance Sheet and Cash Flow Highlights:

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

The carrying value of the Company's debt as of December 31, 2021 was $1,436.7 million. The principal balance of debt net of cash on December 31, 2021 was $1,284.0 million versus $1,253.6 million in the prior-year period. The principal balance of debt is used for the purpose of all leverage ratio calculations under our debt agreements. The following table reflects both principal amounts as well as net carrying amounts of debt across the Company’s debt instruments:

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

*Balance consists of ABL Facility.

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

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

Fiscal Year 2022:

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

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

*CAPEX spend includes capital associated with the new headquarters building which will be partially offset by tenant improvement allowances and state tax incentives

The table below sets forth a reconciliation from our year 2022 forecasted GAAP Net Income to our Adjusted EBITDA.

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

Conference Call Information

A conference call to discuss the fourth quarter 2021 financial results is scheduled for today, February 28, 2022, at 8:30 a.m. Eastern Time, and the Company has posted certain supplemental presentation materials to its investor relations website. Investors and analysts interested in participating in the call are invited to dial 844-757-5731 (U.S. domestic) or 412-542-4126 (international) approximately 10 minutes prior to the start of the call. The conference call will also be webcast at http://investor.partycity.com/. To listen to the live call, please go to the website at least 15 minutes early to register and download any necessary audio software. The webcast will be accessible for one year after the call.

Website Information

We routinely post important information for investors on the Investor Relations section of our website, http://investor.partycity.com/. We intend to use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document.

Non-GAAP Information

This press release includes non-GAAP measures including Adjusted EBITDA, Adjusted Net Income/Loss, Operating margin as a percentage of net sales, and non-GAAP operating expenses as a percentage of net revenue. We present these non-GAAP financial measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by eliminating items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA: (i) as a factor in determining incentive compensation, (ii) to evaluate the effectiveness of our business strategies and (iii) because our credit facilities use Adjusted EBITDA to measure compliance with certain covenants. We also utilize brand comparable sales, sales, gross profit margin and operating expense each excluding certain items not indicative of core operating performance, such as the divestiture of international operations. The Company has reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in tables accompanying this release. We also provide debt principal net of cash, which is calculated by adding Loans and Notes Payable, Current Portion of Long Term Obligations and Long Term Obligations, subtracting Cash and Cash Equivalents. We also define free cash flow as Adjusted EBITDA less capital expenditures. We believe providing these non-GAAP measures provides valuable supplemental information regarding our results of operations and leverage, consistent with how we evaluate our performance. In evaluating these non-GAAP financial measures, investors should be aware that in the future the Company may incur expenses or be involved in transactions that are the same as or similar to some of the adjustments in this presentation. The Company's presentation of non-GAAP financial measures should not be construed to imply that its future results will be unaffected by any such adjustments. The Company has provided this information as means to evaluate the results of its core operations. Other companies in the Company's industry may calculate these items differently than it does. Each of these measures is not a measure of performance under GAAP and should not be considered as a substitute for the most directly comparable financial measures prepared in accordance with GAAP. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results as reported under GAAP.

Forward-Looking Statements

This press release and the commentary in the conference call to be held today each contains forward-looking statements. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance including, but not limited to the statements under “Outlook,” the statements contained in the quotations; and any statements of assumptions underlying any of the foregoing. The forward-looking statements contained in this press release are based on management’s good-faith belief and reasonable judgment based on current information, and these statements are qualified by important risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those forecasted or indicated by such forward-looking statements. These risks and uncertainties include: our ability to compete effectively in a competitive industry; fluctuations in commodity prices; our ability to appropriately respond to changing merchandise trends and consumer preferences; successful implementation of our store growth strategy; decreases in our Halloween sales; the impact of COVID-19 on our financial performance; disruption to the transportation system or increases in transportation costs; supply chain constraints; product recalls or product liability; economic slowdown affecting consumer spending and general economic conditions; inflationary pressures; loss or actions of third party vendors and loss of the right to use licensed material; adoption of or changes to laws, regulations, standards or policies affecting our operations, products or industry; disruptions at our manufacturing facilities; and the additional risks and uncertainties set forth in Party City’s annual report on Form 10-K and quarterly reports on Form 10-Q filed with or furnished to the Securities and Exchange Commission. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, outlook, guidance, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements. Except as may be required by any applicable laws, Party City assumes no obligation to publicly update or revise such forward-looking statements, which are made as of the date hereof or the earlier date specified herein, whether as a result of new information, future developments or otherwise. We have not filed our Form 10-K for the year ended December 31, 2021. As a result, all financial results described in this press release should be considered preliminary, and are subject to change to reflect any necessary adjustments or changes in accounting estimates, that are identified prior to the time we file our Form 10-K.

About Party City

Party City Holdco Inc. is a leading party goods company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party goods globally by revenue. With hundreds of retail stores filled with thousands of products across the United States, we make it easy for our customers to find the perfect party solution through our assortment of party products, balloons, and costumes for their celebration aided by the support of our party experts both in-store and online. Our retail operations include approximately 830 specialty retail party supply stores (including franchise stores) throughout North America operating under the names Party City and Halloween City, and e-commerce websites which offer rapid, contactless, and same day shipping options (including in-store and at curbside), principally through the domain name PartyCity.com. In addition to our retail operations, we are also one of the largest global designers, manufacturers and distributors of decorated consumer party products, with items found in retail outlets worldwide, including independent party supply stores, mass merchants, grocery retailers, e-commerce merchandisers and dollar stores. We combine state-of-the-art manufacturing and sourcing operations, sophisticated wholesale operations and multi-channel retail and e-commerce retail operations to design, manufacture, source and distribute party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world.

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

Source: Party City Holdco Inc.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

		Three Months EndedDecember 31,								Year EndedDecember 31,
		2021				2020				2021				2020
(Dollars in thousands)
(Loss) income before income taxes		$	(20,906	)		$	(124,755	)		$	(874	)		$	(685,110	)
Intangible asset amortization			2,067				2,918				9,075				11,362
Amortization of deferred financing costs and original issuance discounts			1,259				922				4,516				4,198
Store impairment and restructuring charges			—				1,338				—				30,813		(a)
Goodwill and intangibles impairment			11,974		(c)		—				11,974		(c)		581,380		(c)
Stock option expense			87		(g)		125				397		(g)		8,643		(g)
Restricted stock units expense—performance based			872		(i)		1,460		(i)		3,773		(i)		1,460		(i)
Non-employee equity based compensation			—				—				—				1,033		(h)
(Gain) on debt refinancing			—				—				—				(273,149	)
Other restructuring charges			—				—				1,967				10,139
Non-recurring legal settlements			—				68				—				7,094
Loss on sale of assets			—				—				2,642				—
Inventory disposal reserve			68,707		(l)		88,358		(l)		69,632		(l)		88,358		(l)
Loss on sale of business			—				73,948		(k)		3,211		(k)		73,948		(k)
COVID - 19			—				2,548		(m)		1,270		(m)		73,661		(m)
Adjusted income (loss) before income taxes		$	64,060			$	46,930			$	107,583			$	(66,170	)
Adjusted income tax (benefit) expense (l)			17,366		(n)		19,476		(n)		29,332		(n)		(16,940	)	(n)
Adjusted net income (loss)			46,694				27,454				78,251				(49,230	)
Adjusted net income (loss) per common share - diluted		$	0.40			$	0.25			$	0.68			$	(0.49	)
Weighted-average number of common shares-diluted			115,479,030				111,298,379				115,205,939				100,804,944

1. During the years ended December 31, 2020 and 2019, the Company performed a comprehensive review of its store locations aimed at improving the overall productivity of such locations (“store optimization program”) and, after careful consideration and evaluation of the store locations, the Company made the decision to accelerate the optimization of its store portfolio. In January 2020, 20 stores were closed. In the first quarter of 2020, 21 additional stores identified for closure and were closed in the third quarter. These closings provided the Company with capital flexibility to expand into underserved markets. In addition, the Company evaluated the recoverability of long-lived assets at the open stores and recorded an impairment charge associated with the operating lease asset and property, plant and equipment for open stores where sales were affected due to the outbreak of, and local, state and federal governmental responses to, COVID-19. Refer to Note 3 – Store Impairment and Restructuring Charges, of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further detail.
2. Costs incurred for early lease terminations and a merchandise transformation project to transition and optimize stores to the reduced SKU assortment levels.
3. In December 2021, the Company announced the closure of a manufacturing facility in New Mexico that will cease operations in February 2022. As a result, the Company recorded charges consisting primarily of equipment and inventory impairments, severance and other costs (see Note 6, Disposition of Assets and Assets and Liabilities Held for Sale of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion). During the year ended December 31, 2020, as a result of a sustained decline in market capitalization, the Company recognized non-cash pre-tax goodwill and intangibles impairment charges. (see Note 4, Goodwill, of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K).
4. The deferred rent adjustment reflects the difference between accounting for rent and landlord incentives in accordance with GAAP and the Company’s actual cash outlay for such items.
5. The acquisition of Ampology’s interest in Kazzam, LLC in an equity transaction. See Note 25, Kazzam LLC., of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion.
6. Principally charges incurred related to closing underperforming stores.
7. Represents non-cash charges related to stock options.
8. Amounts for 2020 principally represents shares of Kazzam awarded to Ampology as compensation for Ampology’s services. See Note 25, Kazzam LLC., of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion.
9. Non-cash charges for restricted stock units that vest based on service conditions and performance restricted stock units that vest based on service and performance conditions.
10. The Company recognized net gain on debt repayment in 2021. In 2020, the Company recognized a gain on debt refinancing transactions as described in Note 12 — Long-Term Obligations of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
11. The Company sold a substantial portion of its international operations. Related to the sale, the Company recorded a loss reserve in 2020 and an additional loss in 2021. (see Note 6, Disposition of Assets and Assets and Liabilities Held for Sale of Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for further discussion).
12. As indicated in Note 7 – Inventories, Net, of Item 8, “Financial Statements and Supplementary Data,” in this Annual Report on Form 10-K, the Company continued to make progress in improving inventory levels across its stores and distribution network. Consistent with the strategy of rationalizing in-store SKU count and improving working capital velocity, the Company has updated its seasonal assortment strategy to target higher in-season sell-through of merchandise and reduce annual inventory carry-over. As a result, for inventory not required for future seasons, the Company recorded a reserve for future disposals in 2021 and disposed of and recorded a reserve for future disposals in 2020.
13. Represents COVID-19 expenses for employees on temporary furlough for whom the Company provides health benefits; non-payroll expenses including advertising, occupancy and other store expenses.
14. Represents income tax expense/benefit after excluding the specific tax impacts for each of the pre-tax adjustments. The tax impacts for each of the adjustments were determined by applying to the pre-tax adjustments the effective income tax rates for the specific legal entities in which the adjustments were recorded.

PARTY CITY HOLDCO INC. SEGMENT INFORMATION (In thousands, except percentages, unaudited)

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

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

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

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

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

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

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

PARTY CITY HOLDCO INC. OPERATING METRICS

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

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

(a) Wholesale share of shelf represents the percentage of our retail product cost of sales supplied by our wholesale operations.

(b) Manufacturing share of shelf represents the percentage of our retail product cost of sales manufactured by the company.

(c) Party City brand comparable sales include North American e-commerce sales.